HERC Proposes Reverse Auction for Transmission Projects

HERC has asked for comments regarding threshold cost after which bidding route will be followed

The Haryana Electricity Regulatory Commission (HERC) has proposed introducing reverse auction method to award projects related to setting up of transmission infrastructure. A discussion paper has been prepared by HERC that sheds light on how reverse bidding for transmission projects can be beneficial. The paper is up for comments and suggestions up to September 11, 2020.

HERC is of the view that to optimize investments in the transmission system with associated quantified benefits, it would be worthwhile to explore the competitive bidding options including public private partnership (PPP) model implemented in Haryana in the power sector.

The state commission has observed that CAPEX based model for undertaking the projects of capital nature, upfront warrants budgetary allocation with equity support from the State Government and term loans from lending Institutions. It has been seen that there are physical as well as financial slippages in the implementation of the projects.

HERC observed that the delays are also on account of selection of vendors, quality of output, cost over-run and at times issues of conflict of interest. Over the years the outlays required for larger size projects in the transmission system has also strained the resources available to the transmission Licensee/state transmission utility (STU) including support from the State Government.

HERC believes that these concerns can be adequately addressed in case the comparatively larger size projects are implemented by project developers through competitive bidding route including PPP mode. Such a mechanism will not only attract private investment in Haryana power sector but also bring in trail managerial/operational efficiency, mitigating project risk and technology transfer as well as other cascading economic benefits.

Citing examples of states that had switched to reverse bidding for transmission projects, HERC specified that the competitive bidding route yielded a reduction ranging from 20% to 57% in the cost-plus-tariff. HERC has also requested stakeholders to comment on a benchmark project cost. This benchmark project cost will decide if a project will undergo reverse auction or not. Projects of cost more than benchmark will be awarded through reverse auction.

Uttar Pradesh, Madhya Pradesh, Rajasthan, Karnataka are few other states that have adopted reverse auction to award transmission projects.

Recently, the state commission had prepared a discussion paper on (Terms & Conditions of License for Deemed Licensee) Regulations, 2020.