The Hindu Business Line : Power trading cos may be asked to source 50-70% needs from long-term contracts

IN a bid to lower the cost of traded power, the Government is considering making it mandatory for power trading firms to source the bulk of the electricity through long-term contracts. "Traded power has become very costly, partly because trading companies source power through short-term contracts. This pushes up the cost of power for the buyer, resulting in higher tariffs for consumers," the Power Secretary, Mr R.V. Shahi, said at a conference here.

The Power Ministry could make it binding on trading firms to procure nearly 50-70 per cent of electricity through long-term contracts with surplus power utilities, he said.

The Ministry's move comes close on the heels of the Central Electricity Regulatory Commission's proposed move to fix trading margins at two paise per unit against trading margins levied now ranging between five paise per unit and up to even 35 paise per unit in some cases.

Mr Shahi said the trading contracts could be of 10 to 25 years duration, which would ensure that the cost of power remains low for the deficient State, which is purchasing power from the trader. Short-term contracts also resulted in higher trading margins, which was good from the traders' perspective, he said, but added that if this was allowed to happen, it could pose difficulties for the power sector in general.

"This aberration has started and we are very concerned about it," he said.

Speaking on the occasion, the Planning Commission Member, Mr Kirit Parikh, said it was essential to have tariff-based competitive bidding for setting up power plants to reduce cost of power.

He said electricity tariffs cannot be same in all the States, and the Government should not distort the market by artificially levelling prices. Mr Parikh also suggested encouraging private and Government companies to set up power plants in coastal areas based on imported coal to enhance generation capacity.

Such power plants would be viable as imported coal had low ash content and turns out to be cheaper than domestic coal in certain locations, Mr Parikh said.

The Planning Commission is also likely to release the long-awaited draft Integrated Energy Policy next week for public comments, he said, adding the issue of setting up coastal plants might also figure in the policy.

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