Small Power Units To The Rescue

For decades, we have regarded large power stations as essential and small generating sets as expensive stand-bys, to be used only when grid power fails. This is why we have been so keen on setting up new megaplants, of which some (like Enron’s) are mired in controversy. Yet the power cost, project cost and construction time can all be less for small plants than big ones.

Recently a British firm, Munradtech, signed an agreement with Sanghi Polyester for a build, own, operate, transfer (BOOT) project of 12 MW. New megaplants have quoted power tariffs ranging from Rs 2.11 to Rs 3.15 per unit. But Munradtech has guaranteed power at Rs 2.04 per unit for seven years, after which it will transfer the plant to the Sanghis at the depreciated price. Megaplants have transmission losses of 10 to 20 per cent, a captive plant has none.

Megaplants using liquid fuels or gas cost between Rs 4.2 crore per MW (Enron) and Rs 3.5 crore per MW (lowest bids at Nagothane and Bawana). Munradtech has quoted just Rs 1.75 crore per MW, despite paying 25 per cent import duty plus 15 per cent countervailing duty.

Megaplants will take at least 33 months to build. Munradtech will take just six months. And its technology is not unique-many suppliers say they can supply sets of equal efficiency.

Some experts say Rs 2.04 per unit is impossibly low, but the contract is there for all to see. Andhra Pradesh is now setting up a series of 25-30 MW sets, which it feels can generate power at a modest Rs 2.35 per unit.

So, why have large plants at all? First, large plants have flexibility in grid operation, which small ones do not. Second, small sets will not work in rural areas (where they cannot take advantage of existing infrastructure) or in cities (because of their noise and pollution).

Captive plants will exacerbate pollution in industrial areas, while large plants are located some distance away. Gensets use diesel or naphtha, and their proliferation means dependence on imported fuel rather than domestic coal. New coal-based plants may generate more expensive power in their first few years, but after getting depreciated will generate power at much less than Rs 2 per unit.

So, clearly, large coal-based plants must have an important place in any power strategy. But small sets also have an important role, which has not been recognised explicitly so far.

The main advantage of a captive set is that it can utilise the existing infrastructure of a factory, avoiding the major infrastructure costs of a greenfield power plant. The short commissioning time of small sets reduces dramatically interest costs during construction. There are no distribution costs.

The efficiency of small sets-has been improving. Wartsila, another genset manufacturer, claims an energy efficiency of 46 per cent, against 35 per cent for coal-based plants. Wartsila admits that if it sets up a greenfield plant with new infrastructure, its tariff will be an expensive Rs 2.80 per unit MW. But if its gensets are installed in an existing plant, the rate falls dramatically.

To insulate themselves from the vagaries of state electricity boards (SEBs), Indian industries have-already installed thousands of MW of captive power, and this practice needs to be extended. Some SEBs discourage captive power since they want to sell grid power at high rates to industry and use this to subsidise rural tariffs. This cross-subsidisation is wrong in principle. But even if SEBs wish to persist, their best option is to impose a modest tax on captive power to subsidise farmers. SEBs should see gensets as an additional source of power and revenue, not as a threat.

The existing captive power capacity in the country is huge, Ajut lies idle for long hours. SEBs should guarantee to buy surplus power from captive plants a modest margin above fuel costs. This will mean additional profit for the companies, while giving SEBs cheap power (since this avoid the high capital charge of new megaprojects). Nor will SEBs have, to wait years for the construction of new projects-this underutilised source of power can be tapped within months, and will need only legal contracts plus arrangements for metering and distribution. The Karnataka SEB already has-arrangements to buy surplus power from captive plants.

Even better, companies should be allowed to sell surplus power directly to neighbours. Maruti Udyog has gensets of 40 MW, and proposes to supply surplus power to ancillary industries within a 14-km radius. The transmission line will be put up by the SEB with Maruti finance. This idea needs to be replicated widely. It implies that SEB should give up their monopoly on distribution and encourage companies to sell surplus power to ns’tgh-boursneighbours.

Currently, many independent power plants like Enron’s are mired in controversy and look stalemated, with no public sector alternatives in sight. A power famine looks imminent. But the situation can be mitigated in considerable measure by harnessing the full potential of captive power sets. The country badly needs a rational new power policy, but till then, small sets can ‘ provide a decent palliative.

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