KERC Order on ‘Harnessing Captive Power Generation’ 1 KARNATAKA ELECTRICITY REGULATORY COMMISSION No.9/2, 6 th & 7 th Floor, Mahalaxmi Chambers, M.G.Road, Bangalore-560 001. Present: Shri K.P.Pandey Chairman Shri H.S.Subramanya Member Shri S.D.Ukkali Member In the matter of: Harnessing ‘Captive Power Generation’ in the State. ORDER No.D/01/03/2205 Dated: 27.02 2007 1. POWER
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     KERC Order on ‘Harnessing Captive Power Generation’    1 KARNATAKA ELECTRICITY REGULATORY COMMISSION No.9/2, 6 th  & 7 th  Floor, Mahalaxmi Chambers, M.G.Road, Bangalore-560 001. Present: Shri K.P.Pandey Chairman Shri H.S.Subramanya Member Shri S.D.Ukkali Member In the matter of: Harnessing ‘Captive Power Generation’ in the State.   ORDER No.D/01/03/2205 Dated: 27.02 2007 1. POWER SCENARIO IN THE STATE: The total Installed Capacity of the State including central share as on 25.12.2006 is 7937.67 MW comprising of Hydro generation of 3155.25 MW and Thermal generation of 1470 MW by KPCL and the remaining capacity from Independent Power Producers (IPP), Non conventional sources (NCE) and Diesel Power Plant (VVNL). The energy consumption in the state for the year 2005-06 was about 33000 MU . The total consumption assessed and approved by the Commission for 2006-07 is 34538 MU. As per 16 th  EPS projections of CEA for FY05, the peak demand & energy requirement for Karnataka in FY05 was 6826 MW & 39467 MU respectively. The projected peak shortage was 17.61% and energy shortage was 16.11%. The actual installed capacity for FY05 was 5624 MW & the actual generation was 33110 MU. In view of the continuing growth in demand and the need to match the same with the required generation capacity, there is a need to harness surplus capacity available with the Captive Power Plants (CPPs).     KERC Order on ‘Harnessing Captive Power Generation’    2 2. Captive Power Generation in the State: At present only a few sugar mills are feeding their surplus power to the state grid and most of the surplus capacity available with the CPPs in the state still remain unutilized. As per the Report dated 25.8.2005 of the CEA on „Tapping of surplus power from Captive power plants‟, surplus power of 63 MW of the CPP capacity has already been utilized. Karnataka State has a total installed capacity of about 800 MW of Captive Power (1MW and above). About 54% of these CPPs run on diesel, 21% on Fuel oil and the remaining on other fuels. A large number of Captive Power Plants of various types and sizes, using different fuels are available within the state. These Power Plants are being utilized by the industries mainly as backup supply when there is poor quality & interrupted grid supply. Some captive plants act as standby units for grid supply. There are a few captive power plants, which are meeting the entire requirement of power of the consumer viz., ITPL & ITC without depending on the grid supply. Since majority of the captive plants are being operated at a low PLF, surplus power available from these CPPs could be fed to the grid to meet the shortages to a certain extent, especially during the peak hours. Harnessing the surplus power from the Captive Power Plants has the following advantages:    Partially bridge the gap between Demand & Supply.    Optimize the investment made in CPPs    Improve the efficiency of CPPs by operating at a higher PLF (Plant Load Factor).    Additional revenues could be generated by the CPPs by sale of surplus power which could attract new investments in CPP.     KERC Order on ‘Harnessing Captive Power Generation’    3 3. National Electricity Policy and Tariff Policy: The National Electricity Policy and Tariff Policy envisage harnessing of surplus captive power. The extract of text of relevant paras of these policies are given hereunder, a) National Electricity Policy (NEP) The NEP issued by GoI on 12.2.2005 envisages the following  with regard to captive generation : “5.2.2  The Government of India has initiated several reform measures to create a favorable environment for addition of new generating capacity in the country. The Electricity Act 2003 has put in place a highly liberal framework for generation. There is no requirement of licensing for generation. The requirement of techno-economic clearance of CEA for thermal generation project is no longer there. For hydroelectric generation also, the limit of capital expenditure, above which concurrence of CEA is required, would be raised suitably from the present level. Captive generation has been freed from all controls. 5.2.24 The liberal provision in the Electricity Act, 2003 with respect to  setting up of captive power plants has been made with a view to not only  securing reliable, quality and cost effective power but also to facilitate creation of employment opportunities through speedy and efficient growth of industry. 5.2.25  The provision relating to captive power plants to be set up by group of consumers is primarily aimed at enabling small and medium industries or other consumers that may not individually be in a position to set up plant of optimal size in a cost effective manner. It needs to be noted that efficient expansion of small and medium industries across the country would lead to creation of enormous employment opportunities. 5.2.26  A large number of captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. These plants offer a sizeable and potentially     KERC Order on ‘Harnessing Captive Power Generation’    4 Competitive capacity that could be harnessed for meeting demand for power. Under the Act, captive generators have access to licensees and would get access to consumers who are allowed open access. Grid inter-connections for captive generators shall be facilitated as per section 30 of the Act. This should be done on priority basis to enable captive generation to become available as distributed generation along the grid. Towards this end, non-conventional energy sources including co-generation could also play a role. Appropriate commercial arrangements would need to be instituted between licensees and the captive generators for harnessing of spare capacity/energy from captive power plants. The appropriate Regulatory Commission shall exercise regulatory oversight on such commercial arrangements between captive generators and licensees and determine tariffs when a licensee is the off-taker of power from captive plant. 5.7.1 (c)  Captive generating plants should be permitted to sell electricity to licensees and consumers when they are allowed open access by SERCs under section 42 of the Act”   b) National Tariff Policy The Tariff Policy issued by GoI on 6.1.2006 provides that: “ 5.4 While it is recognized that the State Governments have the right to impose duties, taxes, cess on sale or consumption of electricity, these could potentially distort competition and optimal use of resources especially if such levies are used selectively and on a non- uniform basis. In some cases, the duties etc. on consumption of electricity is linked to  sources of generation (like captive generation) and the level of duties levied is much higher as compared to that being levied on the same category of consumers who draw power from grid. Such a distinction is invidious and inappropriate. The sole purpose of freely allowing captive generation is to enable industries to access reliable, quality and cost effective power. Particularly, the provisions relating to captive power plants which can be set up by group of consumers has been brought in
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