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Faced with challenges, power producers turn to group captive model

According to reports, the more than a decade old group captive model is attracting attention as power producers in the country continue to struggle with idle capacities, lack of long-term power purchase agreements (PPA), low merchant rates and pending dues from the state-run distribution companies.

In October 2015, OPG Power Generation Pvt Ltd made a major shift in terms of sales from two of its power plants as it began selling to group captive consumers instead of the Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO). The move, along with other factors, helped OPG improve its credit profile. The company, in fact, received higher ratings from Icra following the transition.

However, thermal power producer OPG is not alone in shifting gears. Wind Power producer Echanda Urja Pvt Ltd, which also used to supply power to TANGEDCO, switched to a similar model in April, 2015.

According to Harry Dhaul, Director General, Independent Power Producers Association of India (IPPAI), higher charges involved in sourcing power from the discoms has created a market for the group captive model. “Cross subsidy surcharge, additional surcharge like fixed charges for an idle power capacity charged to anyone who wants open access are all deterrents for industries that want to source power from discoms,” said Dhaul.

A group captive scheme is where someone develops a power plant for the collective use of multiple commercial consumers. The developer should have at least a 26 per cent equity and has to consume at least 51 per cent of the produced power. According to Central Electricity Authority (CEA) data, around 40,726 megawatts of power capacity in India was operating on the captive model as on December last year.

However, Rajiv Agarwal of the Indian Captive Power Producers Association pointed out that purely captive power plants set up for individual use are also opting for the group captive power model. “At present around 1,500 to 2,000 Mw of power capacity would be working under the group captive model but this is a small number. We haven’t seen coal-based IPP converting to the group captive model. New draft regulations on group captive power will make it difficult for industries planning to share captive power capacity with sister concerns and existing group captive units. In addition, there are efforts being made to over-ride the Electricity Act and Companies Act by changing the rules”,” Agarwal said.

Even as power producers mull the group captive model, many industry experts believe that there would be regulatory hurdles as it diverts power supply and consumers from the discoms. It is, in short, a shift that is easily said than done.

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