Amendment in guidelines under section 63 for procurement of power on FOO basis

## Policy Analysis Report: Amendments to Guidelines under Section 63 of the Electricity Act, 2003 **1. Executive Summary:** This report analyzes amendments to the Guidelines under Section 63 of the Electricity Act, 2003, specifically concerning the procurement of power on a Fuel On, Own (FOO) basis under para Bv of the SHAKTI Policy. These amendments, notified on December 19, 2022, primarily address the calculation and recovery of Fixed Charges based on availability and the criteria for shortlisting bidders. The key changes focus on how Fixed Charges are recovered based on actual availability and clarify the bid evaluation process. The report details these changes, their likely impact, and the stakeholders affected. **2. Introduction:** This report aims to provide a clear and concise analysis of the amendments to the Guidelines under Section 63 of the Electricity Act, 2003, for procurement of power on a FOO basis under para Bv of the SHAKTI Policy. The analysis is based solely on the text of the amendment notification published in the Gazette of India on December 19, 2022. The purpose is to inform the affected industry about the nature and implications of these changes. **3. Policy Overview:** * This document amends the existing Guidelines under Section 63 of the Electricity Act, 2003, for procurement of power on FOO basis under para Bv of the SHAKTI Policy notified on 20th October, 2022. * **Core Objective(s) (inferred from text):** To refine the mechanisms for fixed charge recovery in power procurement agreements and clarify the criteria for shortlisting bidders, likely to ensure fairness, transparency, and efficient cost recovery within the power sector. **4. Background and Rationale:** The amendment appears to address specific aspects of the existing guidelines related to Fixed Charge recovery and bidder shortlisting that required clarification or modification. The amendment to Para 7.2 suggests there might have been ambiguity or dispute regarding the calculation of Fixed Charges based on availability. The amendment to Para 9.2 indicates a need to refine the process for shortlisting bidders to ensure a balance between cost-effectiveness and competition. **5. Key Provisions / Changes:** This section details the changes introduced by the amendments: * **Amendment to Para 7.2 (Fixed Charge):** * **Original Policy Part Changed:** Para 7.2 of the guidelines related to Fixed Charge recovery. * **New Rule/Provision:** Fixed Charge recovery shall be based on actual availability, with full Fixed Charge recovered on achievement of normative availability of 85%. Availability shall be reconciled annually. The bidder shall quote Base Fixed Charge applicable for first year after commencement of supply under PPA. Base Fixed Charge shall be escalated in subsequent years based on variation in the WPI in accordance with the methodology prescribed in the PPA. Even if, the full capacity is not scheduled by the Utility, the liability of fixed charges for the entire Contracted Capacity shall be that of the Utility. * **Difference/Effect:** This change clarifies that Fixed Charge recovery is directly linked to the actual availability of the power supply. It sets a benchmark of 85% normative availability for full recovery. It specifies how the Base Fixed Charge shall be escalated in subsequent years based on variation in the WPI in accordance with the methodology prescribed in the PPA. It clarifies that the utility is liable for the fixed charges of the entire contracted capacity even if the full capacity is not scheduled. * **Amendment to Para 9.2 (Shortlisting of Bidders):** * **Original Policy Part Changed:** Para 9.2 of the guidelines related to the shortlisting of bidders. * **New Rule/Provision:** The list of Shortlisted bidders for consideration of evaluation for a source shall be arrived at by considering the last bidder whose bid is less than or equal to 110 of bid total quoted Tariff in RskWh of the L1 bidder for that source. * **Difference/Effect:** This change provides a clear quantitative criterion for shortlisting bidders. Only bidders whose total quoted tariff is within 110% of the lowest (L1) bidder's tariff will be considered for further evaluation. This aims to streamline the evaluation process and ensure that only reasonably competitive bids are considered. **6. Target Audience and Stakeholders:** Based on the text, the primary stakeholders affected by these amendments include: * Power Generating Companies (suppliers) participating in FOO-based power procurement under the SHAKTI Policy. * Electricity Distribution Companies (Utilities) responsible for procuring power under these guidelines. * Regulatory bodies overseeing the power procurement process. **7. Implementation Aspects (Inferred):** * **Responsible Agency/Bodies:** The Ministry of Power is responsible for issuing and implementing these guidelines. Utilities and power suppliers are responsible for adhering to the guidelines in their power purchase agreements (PPAs). * **Timelines/Procedures:** The amendments are effective from December 19, 2022. The guidelines will be relevant for all ongoing and future power procurement processes under the FOO mechanism of the SHAKTI Policy. The annual reconciliation of availability is a key procedural element. * **Specific to Amendments:** Utilities will need to adapt their Fixed Charge calculation and payment procedures to align with the new availability-based mechanism. Bidding processes will need to incorporate the 110% threshold for shortlisting. **8. Expected Outcomes / Impact of Changes:** The likely intended outcomes of these changes are: * **Para 7.2 (Fixed Charge):** To provide greater clarity and fairness in the recovery of Fixed Charges, incentivize power plants to maintain high availability, and ensure utilities are liable for the full contracted capacity’s fixed charges even if they don't fully schedule it. * **Para 9.2 (Shortlisting of Bidders):** To streamline the bidder shortlisting process, improve the efficiency of bid evaluation, and focus on the most competitive bids. Overall, the amendments aim to improve the transparency, efficiency, and fairness of the power procurement process under the FOO mechanism. **9. Conclusion:** The amendments to the Guidelines under Section 63 of the Electricity Act, 2003, for procurement of power on a FOO basis under the SHAKTI Policy represent a refinement of existing procedures, specifically in the areas of Fixed Charge calculation and bidder shortlisting. These changes are likely to have a direct impact on power generators and distribution companies, requiring them to adjust their operational and contractual practices. The amendments underscore the government's commitment to optimizing the power procurement process and ensuring a stable and competitive electricity market.

Key Entities Referenced