Mountains of Concrete - International Rivers

Box 3: Merchant Sale of Power and WindfallProfits for Private companiesIndia’s new Hydropower Policy allows developers to sell40% of their saleable electricity on a merchant basis.In the case of hydropower projects, the main componentof production costs is financial – repayment of capital,principle and interest. (The social and environmentalcosts are often externalized, and thus not paid for by theprojects themselves).After 7-10 years, when full repayment of capital costs iscomplete, the cost of generating power can fall sharply.However, in the open market, electricity can fetch avery high price. Thus, allowing a private company to sellpower in the open market can lead to windfall profits.As an example, consider the 300 MW Baspa-II Project.According to the Tariff Order by the Himachal PradeshState Electricity Regulatory Commission, in 2006, ifcompany profits are left out, 89% of the generationcost went to capital recovery and 11% to operatingexpenses. Thus, as soon as repayment is complete, thecost of generation will drastically decrease by 89%. Thecompany will be paying just 11% of the previous costsof production, but the price of electricity on the marketwill remain the same. Thus, the company stands to makesudden, huge profits.In the case of a public company, when the cost of generationgoes down in later years, the result is a decreasein the pooled cost of electricity generation; it can thensell the power at lower tariffs. The benefit will go to thepublic at large. But in the case of a private developer,this benefit goes directly to shareholders.consumer, and mediated by the rules set by the regulatorycommissions, other agencies are also likely to play a key role.One such agency is PTC India Limited (formerly PowerTrading Corporation of India).PTC India Limited was set up for trading powerand encouraging the development of a power market. Animportant role that PTC has been asked to play by thegovernment of India is that of the nodal agency for tradingpower with the neighboring countries of Bhutan andNepal. Among the projects whose electricity is being or willbe traded by PTC are Malana-II and Karcham Wangtoo inIndia, West Seti in Nepal, and Chukha, Kurichu and Talain Bhutan. Several other trading companies are also in theprocess of being created.Another important development in this context is thelaunch of the Indian Energy Exchange Limited (IEX), onJune 27, 2008. The IEX “…is India’s first-ever, nationwide,automated, and online electricity trading platform. It hasbeen conceived to catalyse the modernisation of electricitytrade in the country by ushering in a transparent and neutralmarket through a technology-enabled electronic tradingplatform.” 76M o u n ta i n s o f C o n c r e t e : D a m B u i l d i n g i n t h e H i m a l aya s | 1 9