The power ministry is pushing to popularise the concept of merchant power plants to develop the market for power in the country, long dominated by traditional rate-based plants operated by regulated electricity suppliers generating power for their own customers. It is busy enlisting the support of financial institutions to fund such plants.
Merchant power plants (MPP) are like wholesalers, and differ from traditional rate-based power plants in the way they are financed and the way they sell electricity -- which is by competitive pricing and bidding.
Last month, Power Secretary RV Shahi told an Inter Institutional Group (IIG) meeting on power held in Mumbai, "MPPs can provide the additional generating reserves that India needs now and will need in the future. They are a modern, market-based answer, at least in part to energy challenges faced by the country."
At the meeting attended by senior power ministry officials, the chairmen of the IDBI and State Bank of India and representatives from ICICI, Life Insurance Corp and IDFC, Shahi pointed out that MPPs fill different niches in the market: some provide steady supplies to power grids, while others fire up only when demand is highest and meet peak loads.
According to an official who attended the meeting, Shahi urged financial institutions to help MPPs. "MPPs operating competitively help assure that power is produced with efficiency and supplied to locations where it is needed most," he said.
The government has identified 14 coal blocks spread across the country to be put on the block for MPPs. A majority of them are in West Bengal, Jharkhand, Orissa and Madhya Pradesh.
The power ministry has already assured that MPPs would be allocated coal blocks and linkages. The coal ministry will regulate allocation of coal mines in consultation with the power ministry so that a faster development of such projects takes place.
The meeting held last month has also decided to expand the IIG to include more banks including Bank of Baroda and Bank of India.