Power project costs rise as delays plague construction

Delays in construction of power projects — a common feature in practically every project under implementation — is costing the country dear. Consequently, consumers would need to brace themselves up for higher cost of power in the coming years.

Data provided by Central Electricity Authority shows that over 80 thermal power projects are running behind schedule for various reasons. Some have suffered extremely high cost overruns — NTPC’s Barh project and KSK Mahanadhi Power’s Akaltara, for instance, have seen their costs overshoot the original estimates by more than ₹6,000 crore.

All of these projects have consumed substantial investments and as such abandoning them seems out of question. But if they proceed at such high costs, consumers will have to pay a high tariff.

The biggest reason for delays is local protests. In NTPC’s 2,400 MW Kudgi project in Karnataka, the protests were “violent”, leading to mass “exodus of manpower”.

The Chhattisgarh government’s 1,000 MW Marwa project cost ₹2,351 crore more due (among other reasons) to “law and order problems”. NTPC’s 1,600 MW Gadarwara project was held up for two months because the villagers demanded additional compensation for land already acquired. Many projects have been held up due to “financial constraints” faced by developers. These include Essar Power’s 1,200 MW Mahan project, KSK’s Akaltara and Lanco’s Amarkantak. GMR Energy’s 1,370 MW Raikheda project cost overran the original estimate by ₹2,726 crore — ‘financial constraint’ was among the reasons stated.

Ten of the fifteen 270 MW projects planned by Rattan India Power (formerly, India Bulls) are held up due to hamstrung finances — these ten projects have already consumed investments of ₹1,476 crore.And there are projects limping because of delays on the part of equipment suppliers. BGR Energy’s broken tie-up with Hitachi has turned the clock back on at least two projects of NTPC—the 1,320 MW Meja project in UP and 1,600 MW Lara project in MP. A few delays have been blamed on balance of plant suppliers like HCC, Techpro and IVRCL. BHEL has been held responsible for a few projects, for example, NTPC’s Bongaigaon, Mouda and North Karanpara.

Implication on powercost Such huge cost overruns will inevitably have their implications on the cost of power. Approval of costs is the remit of the central and state electricity regulatory commissions.

Fixed costs will have to be paid to the developer by the buyer of power—the electricity distribution company—even if the power is not purchased. “Tariffs of the recently commissioned capacity seem to be quite higher than the benchmark tariffs approved by the CERC. This issue needs further analysis and research, and it has serious implications, if this capacity is to be backed down,” says Ashwini Chitnis, Senior Research Associate at Prayas Energy Group, a Pune-based think tank.

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