Policy Revisit

Need to strengthen implementation framework for early commissioning of ISTS projects

Timely commissioning of interstate transmission systems (ISTS) is the key to the success of the power value chain. Mindful of the criticality of these assets, the tariff regulations over the years have included the provision for an additional return of 0.5 per cent under the regulated tariff regime, payable to the utility if the projects are commissioned within the prescribed time frame. By deploying innovative technologies for project execution and state-of-the-art project management techniques, developers have proved that the toughest of transmission projects can be commissioned before schedule, though it may involve additional mobilisation expenses. To incentivise efficient project execution and coordinated implementation with upstream and downstream developers, planners and regulators proposed an incentive scheme for all projects that are commissioned ahead of schedule.

The policy

The policy issued by the Ministry of Power (MoP) in July 2015, for incentivising the early commissioning of transmission projects, provisions that developers will get incentive for the early commissioning of transmission project(s) in the form of admissibility of the transmission charges from the actual commercial operation date (COD) occurring ahead of the scheduled COD (SCOD). The policy needs to be read in the context of the transmission service agreement (TSA), where the COD has been defined as “the date as per Article 6.2”. As per the said article, the COD can occur on  a date prior to the SCOD mentioned in the TSA,  only when it is mutually agreed to, by all parties involved. The recourse for default on mutual agreement is envisaged to be carried out through indemnification agreements among stakeholders. In this regard, the Central Electricity Regulatory Commission (CERC) underlined the need for an implementation agreement (IA) to be signed between the developer of the asset, to be commissioned before schedule, and upstream/downstream developers. The CERC also advised that such an agreement should be incorporated in the bidding guidelines so as to ensure more clarity and certainty.

The current process

For the smooth implementation of the early commissioning policy, the MoP, in October 2016, constituted a committee to look into the issues and process the cases of early commissioning. The developers aiming to achieve early commissioning of the assets are required to present their cases to the committee. The committee, after discussions with stakeholders and exploring all the possible alternatives for early commissioning, is required to decide whether the asset can be considered for early commissioning. The underlying theme of the process is that the upstream or downstream assets executed by other transmission licensees or by the state transmission utility should also be in place and match with the revised commissioning schedule of the asset proposed to be early commissioned for ensuring proper utilisation of all assets in the power value chain. If the commissioning schedules are not matched, then the transmission assets that have been commissioned before the SCOD for availing of the incentive will remain unutilised, and thus customers cannot be loaded with such additional transmission charges.

This makes it imperative for a developer, keen to early commission the asset, to carry out a long-drawn-out process of dialogue with the upstream and downstream stakeholders, propose the COD for the early commissioning of transmission assets and get it approved at various levels. The whole process is required to be carried out under the aegis of the Central Electricity Authority (CEA) by the successful bidder (developer) after the bidding process is complete. This process also requires notifying the intent of early commissioning of the asset by the developer, at least 24 months before the SCOD of the asset.

Pitfalls in the current process

The requirement of 24 months advance notification is a major dampener on the spirit of incentivising the efficient commissioning of assets. This assumes that any transmission line element would need at least a 24 month time frame, irrespective of the system requirement. The evacuation of renewables, which have a significantly low gestation period, and projects required to be executed in a compressed time schedule would require the transmission lines assets to be  commissioned to match the commissioning of generation plants. In such cases, the construction period of line elements can be as low as 12 to 18 months.

The current process involving stakeholders’ consultation and consensus building is not only long drawn out, but also has a significant element of uncertainty about the final outcome of the process. Therefore, it keeps the developer in limbo in terms of additional mobilisation investments required for early commissioning. This process also leaves scope for asymmetry of information and hazards of wrong assumptions at the bidding stage with regard to the early commissioning of the asset. The current process can be better managed by obviating the delays, if consensus building among the stakeholders is carried out before the selection of the successful bidder, thus allowing the developer the desired clarity on this issue up front.

Draft implementation agreement

Recently, the CEA came out with the draft Implementation Agreement (IA) in line with the CERC’s advice, to be signed between the transmission project developer, known as a special purpose vehicle (SPV) in the agreement, and downstream/upstream developers with the purpose to indemnify the stakeholders against possible delays from the agreed date of early commissioning. This agreement is proposed to be delivered at the time of SPV takeover by the selected bidder and thus would initially carry the SCOD as provided by the bid process coordinator. Although not specifically recorded in the document, it appears that any revised date of early commissioning would have to be negotiated amongst stakeholders and  mutually agreed to, and then be entered in the said IA, amending the SCOD accordingly. This revised SCOD will be the legally binding date on the signatories for the determination of all financial obligations in case of non-adherence.

This agreement appears to be still fraught with uncertainties emerging from long-drawn-out post bid dialogue requiring stakeholders to agree to any date of early commissioning, post the selection of the transmission service provider. Even if the agreement is signed for revising the SCOD, it would require certification from the CEA in the interest of safety and security of the grid, before being considered for early commissioning as advised by the CERC in one of their earlier orders passed regarding a petition of early commissioning on January 28, 2015, thus effectively retaining the same process as was there before the IA.

Suggestions for change of approach

There is a standard process of deliberation in the Regional Power Committees, region-wise Standing Committees for power under the CEA and the Empowered Committee before a project comes up for bidding under the tariff-based competitive bidding route. The complete process involves exhaustive stakeholder engagement, wherein the need for the asset is ascertained by constituents, validated by planners and agreed upon by all stakeholders. This process may include an additional element of discussion regarding any early requirement for the commissioning of the assets under discussion and accordingly the asset be accepted for early commissioning by the stakeholders during these deliberations.

Based on these inputs, the TSA may provide two commissioning dates. One may be the SCOD based on the benchmark construction periods and the other may be the Agreed COD (ACOD), which is agreed by stakeholders during the deliberation process of project selection. While the SCOD will act as the final date, beyond which the liquidated damages will be payable to all beneficiaries, the delays beyond the ACOD will be treated as per the proposed IA.

This change in approach for early commissioning will not only reduce uncertainties arising out of long discussions and deliberations on the matter post selection, but will also make the proposed incentive scheme and IA more meaningful and effective.

The views expressed in this article are personal and have no bearing with respect to any company or any businesses related to any company.

Anil Rawal, Vice-President, Head, Central Infra and Railways, Sterlite Power Grid Ventures Limited

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