Time to rise to the occasion and support CPP

“It is a natural requirement of nation and industry to install captive power plants for attaining global competitiveness,” says Rajiv Agrawal, Secretary, Indian Captive Power Producers Association (ICPPA)
Captive power plants (CPP) are necessary for continuous availability of quality power, and the shortage of fuel and coal is affecting power generation at CPP. In an exclusive email interaction, Rajiv Agrawal discusses issues surrounding captive power plants and their initiatives to promote the plants.
How do captive power plants contribute to Indian energy and power industry?It would be interesting to start with the historical contribution of CPPs to Indian growth story that will continue to stay in future.
With onset of economic liberalisation, in 1991 the government amended the Electricity Supply (Act) 1948 to allow the entry of private investors in power generation and distribution. Till that time, approvals for setting up CPP was a cumbersome process with CEA giving techno-economic clearance.
After failure to receive investment in IPP and slow industrialisation pace, by 1995 union government realised that the power availability to industry can improve only if they are persuaded to invest in CPP and get access to transmission system. Accordingly, the ministry advised all states to form suitable policies.
Captive power plants have been installed by industry, deploying huge investments and are backbone of large industry sectors responsible for national growth and infrastructure build-up, i.e. cement, chemicals, steel and iron, aluminium, zinc, paper, textile, tyre etc. These industries are first link in the national value chain by converting natural raw materials to finished goods or raw material used in down-line industries. All continuous process industries and factories working in three shifts can’t survive without CPP or backup power.
Captive power plants are the only available, efficient (PLF > 90-100 per cent), economic source (least T&D losses) of un-interrupted quality power for industry. In case of co-generation CPP, the thermal efficiency can reach 50-80 per cent for “fuel-power cycle” as against 35-42 per cent for most efficient sub-critical and super-critical IPP.
CPP are ensuring sustained GDP growth and development, generation of wide scale employment and earning incremental revenue for government through taxes and duties. CPP-based industry contributes to about 18 per cent of nation’s GDP (excluding services), employs 16 per cent of direct workforce (excluding agriculture) and to about 5 per cent of nation’s forex earnings. As per 2004-05 data, these industries added about ` 325 billion to national tax pool. All these figures do not include indirect employment and further value addition.
Captive plants take the pressure away from national grid. If SEBs/IPPs were to take load of CPPs, the entire grid will need a quality upgrade and existing power deficit in country will increase three folds. If 100 per cent of linkage coal is given by Coal India Ltd. (CIL), CPPs can also pump excess power into the grid. Assuming 10 per cent power to be excess, about 5,000 MW may add to the national power pool from already installed CPP capacity.
During power crisis and shortage, what role do captive power plants play?As explained, policy shift in 1995 towards CPP was a result of power shortage, affecting economic well-being of the nation. States realised that assured, uninterrupted, quality power at affordable price are some of the prerequisite for setting up industry.
Most states formed policies giving incentives to CPP to accelerate industrialisation in their states despite overall power crisis and states achieved visible positive results. A system of allotting fuel and coal to CPP was put in place by Coal and Petroleum Ministries. Creation of captive power generation capacities also helped power utilities spare the power and grid-capacity for the public at large.
During national grid failure in 2012, the industries with CPP were least affected, proving advantage of distributed power generation.
You may find it interesting that the actual positive roles of CPP for nation building are already recorded by policy makers in National Electricity Policy 2005.
How did ICPPA help in promoting captive power plants?It is a natural requirement of nation and industry to install CPP for attaining global competitiveness. No one needs to promote CPP. People just need to remove obstruction in fuel supply to CPP, stop discrimination of fuel quantity and price, and give equitable treatment also for power transmission and taxes by states.ICPPA takes care of interests of CPP because they are scattered across country and fragmentation lowers their negotiation power. Therefore, as an all India association, ICPPA is regularly taking up both the policies and operational issues with various ministries and agencies.
A few examples illustrate consistent efforts of ICPPA and crucial role it plays in an environment with too many contenders for limited natural resources. ICPPA provided crucial inputs during formation of New Coal Distribution Policy (NCDP 2007) to keep CPP at par with other power producers. During NCDP review by coal minister in June 2011, ICPPA’s view of equitable and non-discriminatory treatment to CPP also got resonance from the Planning Commission thus protecting interest of CPP.
ICPPA clearly highlighted that from the very beginning. Many aspects of NCDP implementation are lagging due to the efforts made by interested groups to corner this scarce natural resource. For example, NCDP provides coal distribution method for CPP with more the 1 MW, but from the beginning CPP with less than 5 MW never given coal and now even up to 10 MW CPP is denied the right on this natural resource.
ICPPA contributed to reversal of price hike after CIL raised coal prices up to 250 per cent while changing over from UHV to GCV bands pricing.
What are the challenges faced by this sector and how do you deal with them?With about 51,000 MW, captive power capacity in the country roughly 18 per cent of total installed capacity. Out of it, about 40,000 MW are coal fired; making CPP sector, and thereby the industry, highly dependent on availability of coal. Precisely, this is the biggest challenge faced by CPP.
Since 2009, the Coal Ministry has stopped issuing fresh coal linkage and LOA for CPP. As a result, 382 CPP applications for 34,000 MW are pending. As per our information, a large number of these CPP are commissioned or at advance stage. In the absence of linkage coal, many of CPP have been shutdown or operating at partial load.
In 2012 it was decided that for entire 12th Five-Year Plan, coal will be given only to IPP for about 78,000-MW projects. Reluctantly, CIL agreed to sign FSA for 50 per cent coal quantity due to limited coal availability. However, the government forced CIL to sign 65 per cent of LOA with 15 per cent imported coal though materialisation will be lower. Everyone knew and also witnessed in past 2 years that IPP can’t breakeven at 65 per cent PLF level and there are few takers for costly power, based on imported coal. Thus the rest of the country has been denied the equitable opportunity to get coal.
Based on promises by successive central and state governments from 1995 onwards, CPP are sustaining global competitiveness for Indian industry. However, efforts are being made by a section to reverse this time wheel of CPP. Post “National Electricity Act 2003”, a large number of businessmen and politicians diversify business and grab early opportunity in the power sector. All efforts were made to get assured coal supply for themselves, displacing CPP and industry requirements for coal. Unrealistic gross number of IPP applications received by the Coal Ministry for coal linkages will take care of Indian power demand 20-40 years from now.
Another big stumbling block is discrimination in levy of taxes and other power charges on CPP by states. Many provisions of Electricity Act 2003 and policies therein are denied or curtailed for CPP. RPO obligations on CPP, without getting full coal at price equal to IPP, are a penalty that is being contested by industry. If policy makers went logical, this could be converted as incentive, and industry could have achieved much higher than targeted.
Similarly, non-conventional and renewable energy projects can serve as CPP, but somehow the incentives available to supply to grid are denied or skewed if used as CPP. RPO obligations and REC related to co-generation are still being denied despite creating high thermal efficiency that reduces much of green house gases. Similarly, power by waste heat recovery (WHR) is being placed as “do it” or face penalty in place of giving incentives and REC.
During renewal of CPP FSA in 2013, CIL imposed 25 per cent cut on FSA quantity because CPP was not ready to buy 25 per cent A and B grade (G1-G4) unsold costly coal. After ICPPA took up the matter with CIL chairman, the condition was withdrawn (except for ECL and SECL). The sad part is that CIL is cutting CPP linkage for diverting the coal to IPP and save short supply penalty.
From 2011, CIL is charging 30-35 per cent extra from CPP. This goes against NCDP and policies under Electricity Act 2003 to give level-playing field for all power producers. While national coal shortfall has been 10-15 per cent, CIL forced 50 per cent cut on CPP linkage while IPP get 100 per cent of linkages.
At present due to low demand from IPP, a lot of coal is not being lifted. While a large number of operating CPP is waiting to get linkage coal, India never had sufficient coal to meet committed demand of all users. Dissolving of standing Linkage Committee (Short Term) by the Coal Ministry has taken away flexibility to give coal to CPP at such occasions.
Railway diverts the CPP rake programs to IPP resulting backlog. Many of these subjective instructions are given by top central or state government functionaries, making it difficult for zonal railway to overrule. Then railway also monitors IPP with lower coal stocks and diverts all coal rakes to them. Many of these government IPPs have perennial problems in maintaining stocks but in place of removing root cause, others like CPP and industries are penalised.
How do you deal fuel shortage?The fuel shortage is a national issue. While a lot is being discussed and done at the government level, ICPPA keeps interacting with the policy makers. We also try to question rationale of broad decisions so that policies and their implementation can be corrected.
Now the question comes — how long can India sustain vicious cycle of costly coal imports (increase trade deficit) on borrowed money (through FDI) and not able to export goods due to reduced global competitiveness (costly production with higher power cost from imported coal)? The Planning Commission projected coal import to reach target generation if India wants to maintain 8-9 per cent growth. What actually transpired is that a lot of states are not ready to buy costly power, based on imported coal.
At the same time, increasing trade deficit due to higher coal import is disturbing nation. CIL want to link Indian coal price to import landed price but forgets that to remain globally competitive, Indian energy cost can’t be increased while other nations are boosting export by direct and indirect subsidies.
The issue of fuel shortage is a story revolving around cornering of this scarce national resource. Decision making by our up-right bureaucrats and sensitising them from time to time is helping in sustaining operations. For example,
ICPPA took up with Railway Board to reverse decision of SEC railway to cancel 20 per cent allotment for CPP from October ‘12 to March ‘13 and prevented more than ` 100-crore loss for CPP. Again in this year, ICPPA is sensitising railways not to lapse CPP rakes due to tussle between zones and CIL subsidiaries. Railway blames CIL to have signed too-many FSA (with IPP) beyond loading capacity and to stop CPP and industry rakes if coal production is reduced due to problems related to operations or law-and-order or natural factors.
On the other hand, CIL points to non-availability of rakes. While CIL was forced to sign IPP FSA in place of equitable distribution of coal to all stake holders due to political intervention.
Today more and more industries understand the need to consolidate efforts under the banner of ICPPA so that the abrasions for CPP policies and operation can be ironed out.
Through EPR, we appeal all CPP units to inform us their problems and challenges so that the same can suitably be taken up with relevant authorities.
Also, many CPP are experimenting with mixing various fuels like petroleum coke, imported coal, husk and wastes etc. with coal to reduce cost and increase efficiency for their sustenance. Wherever possible, they are using co-generation and waste heat recovery processes.
Industries have also started investing in non-conventional and renewable energy sources to diversify some risks.
How do you see the future of captive power plants in India?The CPP are pre-requisite for sustainable and uninterrupted availability of quality power for industry. As mentioned earlier, to serve quality requirement for 10 per cent industrial power consumption, nation can’t upgrade remaining 90 per cent infrastructure. While IPP can give power to trade and public at large, CPP could boost industrialisation and employment generation from 1995. Equitable distribution of coal at same price to all power producers will remain a critical factor. Therefore, the government has to rise to the occasion and support CPP.

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