NTPC currently sells the full quantum of power from its existing power stations to the State Electricity Boards under long-term Power Purchase Agreement, based on tariffs determined by the power regulator and for which payments are secured through LCs (letters of credit). The new proposal to sell power from two of its projects - the 500 MW third stage of the Korba project in Chhattisgarh and the 500 MW stage-three unit of the Farakka project in West Bengal - would mark NTPC's entry into the lucrative merchant power segment. Private sector players including the Naveen Jindal Group, Videocon and the Adani Group are among the frontrunners in the merchant power business, which is risky by virtue of power not being tied-up upfront but offers lucrative returns in light of the electricity shortages across the country.
"The matter is under consideration of the Government. NTPC has proposed 65 per cent of power generated from Korba and 63 per cent from Farakka to be sold outside long-term PPAs," a Government official involved in the exercise said. Apart from the Farakka and Korba units, the state-owned utility was earlier planning to sell the entire power from two of its upcoming hydro projects outside long-term PPAs. However, it has now decided to convert them into regional power projects.
The company plans to have 7-8 per cent of its total capacity as merchant power by 2017. The utility has a power generation capacity of 31,704 MW, and plans to increase its installed capacity to 75,000 MW by 2012.
Short-term market deals are proving to be lucrative for players, with average tariffs hovering between Rs 5.50 and Rs 7.60/unit for the past two years in bilateral trade and trade through exchanges. Apart from the Adanis and the Jindals, new players such as Indiabulls and Navbharat Ventures have also announced plans to set up merchant power plants.