Merchant Opportunities for power plants in India
The concept was merchant power plant was introduced in India in 2003. With an existing huge demand supply gap of electricity in India, MPPs are considered to be panacea in the long run. Though the government has targeted capacity addition of 88,000 MW in the 12th FYP it seems faltering purely basis the trend of delays observed in project commissioning and the after effects of economic slowdown hitting the power generation sector in India. Can MPPs provide a sustainable solution to the energy needs of India? The paper attempts to find out challenges being faced by IPPs, various risks and return related to MPPs and what strategies can be adopted to promote merchant power plants and increase their market opportunities.
Depending on the source of financing and customer to whom electricity would be sold, there are two types of power plants. Traditional rate based power plants and merchant power plant. Traditional rate based power plants are financed, built and operated by regulated electrical utility which in turn get the power at a cheaper rate. On the other hand funding for merchant power plants is provided by investors and electricity produced is sold at competitive price in the market. Traditional rate based power plants have a long term power purchase agreement (PPA), while merchant power plant have no such agreement.
The concept of merchant power plant was initiated by Ministry of Power, Government of India in 2003 as a measure to reduce the demand supply gap. In March’2009 peak demand in India was 109.8 GW while the supply was 96.6 GW. The peak deficit has almost increased by 40% from 9.5GW in FY04 to 13.1GW in FY09. In this context this paper aims to highlight the condition of merchant power plants in India, risk and returns associated with merchant power plants and how to improve the merchant opportunities for these power plants.