Power Ministry Favors Tariff-Based Competitive Bidding for Intrastate Transmission

In a recent notification, the Ministry of Power (MoP) said that as the intrastate transmission systems have a major share in the country, the adoption of tariff-based competitive bidding to develop intrastate transmission systems can effectively reduce the burden on the state governments. It would also lead to reduced tariffs leading to consumers’ benefits.

The matter was discussed in a meeting, and it was decided to request the state governments to adopt tariff-based competitive bidding to develop intrastate transmission systems.

The government issued the revised tariff policy in January 2016, and according to that:

  • Investment by transmission developers, including the central transmission utility and state transmission utilities, would be invited through competitive bids per the central government’s guidelines from time to time.
  • While all future interstate transmission projects should, ordinarily, be developed through a competitive bidding process, the central government may give exemption from competitive bidding for a specific category of projects of strategic importance and works required to be done to cater to an urgent situation on a case-to-case basis.

The Ministry noted that with the adoption of tariff-based competitive bidding for the development of transmission systems, the following benefits were observed:

  • With a large number of bidders participating in the development of a transmission project, the discovered tariff can be lower than the cost-plus tariff by about 30-40%.
  • It attracts private investments to develop projects, and the government funds can be used for other priority sectors.
  • It encourages the use of advanced technology for improving cost and efficiency.

A cost-plus tariff is where the developer is paid the actual cost of the project plus an agreed profit.

Previously, Mercom had written about how the transmission infrastructure was struggling to meet the expected surge in electricity demand over the coming decade and the rapid installation of solar and wind projects.

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