MSEDCL recently concluded auction for its 250 MW peak power tender issued in August 2022. Tariff for daytime power (10 AM-6 PM) was fixed at INR 2.42/ kWh and bidders were required to quote a tariff for supply during remaining hours (6 PM-10 AM). There were four bidders – Ayana (150 MW) and NTPC (250 MW) quoted the lowest tariff at INR 9.00/ kWh, while HES Infrastructure (50 MW) and Greenko (250 MW) quoted INR 9.01/ kWh and INR 9.04/ kWh respectively.
The tender provides a lot of flexibility on project configuration but peak power offtake provisions are unfavourable:
- Minimum CUF is specified as 19%.
- Projects may be may developed anywhere in the country using any combination of solar, wind and hydro power coupled with any storage technology. There is no requirement to co-locate storage component with other components.
- Bidders must be able to supply 125 MW power – 50% of contracted capacity – for any six non-solar generation hours (peak power) as specified by MSEDCL on daily basis. However, MSEDCL obligation is limited to offtaking power for only 2 of these hours.
- Any shortfall beyond 15% in peak hour supply would be penalised at 1x, 2x and 3x peak power tariff for shortfall between 15-20%, 20-30% and > 30% respectively.
- Surplus power supply in peak hours and off-peak hours would be compensated at 100% and 75% of off-peak tariff respectively.
With co-location of storage component not essential, we understand that all four bids are based on pumped hydro storage technology. Ayana has signed an agreement with Greenko to secure 6,000 MWh pumped storage capacity. NTPC is in the process of contracting 500 MW/ 3,000 MWh storage capacity with Greenko at an estimated cost of storage of INR 5.00/kWh for one daily cycle, proving strong cost advantage of pumped hydro over battery technology.
Figure: MSEDCL 250 MW auction result
Source: BRIDGE TO INDIA research
The ideal technology combination for these projects is solar:wind in the ratio of about 40:60 to meet minimum peak supply requirement at the lowest possible cost while minimising storage capacity. Given the effective pumped storage cost of about INR 3.75/ kWh assuming 1.5 average cycles per day, the bid tariffs seem quite a bit higher than expected. The catch here is that while the bidders are required to build system flexibility, MSEDCL has limited its obligation to buy peak power to only two hours every day. As a result, all storage cost has been loaded on two committed hours of peak offtake increasing peak tariff by about 30% to INR 9.00/ kWh. A simplistic comparison with SECI’s 1,200 MW peak power tender – off-peak power tariff fixed at INR 2.88/ kWh, 100% offtake obligation for entire peak hour output – shows the difference clearly. In this tender, winning peak tariff bids came in the range of INR 6.12-6.85/ kWh by Greenko and ReNew respectively.
The risk now is that the high tariff would be unacceptable to MSEDCL, which is reportedly trying to negotiate with both Ayana and NTPC. Irrespective of the final outcome, it is becoming abundantly clear that pumped hydro technology is the winner with its significant cost advantage notwithstanding construction risk concerns. Other than Greenko, which has total capacity under development of 2,460 MW/ 22,100 MWh, JSW and Adani group are also developing pumped hydro projects.
More peak power tenders are on the way. SECI has issued another 1,200 MW peak power tender, while GUVNL is about to conduct auction for a 500 MW peak power tender. Results of these tenders will provide useful clues about shape of industry over next few years.
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