Analysis of UMPPs framework

Abstract

Purpose: To achieve the mission of “Affordable Power to All” by 2012, the development of Ultra Mega Power Projects (UMPPs) has been identified as a major thrust area by the Government of India. The purpose of this paper is to study and analyse the UMPPs framework with reference to bringing in competition and efficiency gains.

Design/methodology/approach: This paper analyses the UMPPs framework in the context of increasing the availability of electricity at reasonable and competitive prices in India. The tariff/bid evaluation model is used for tariff analysis. Findings: The paper reveals that risk sharing between government and project developer, adoption of innovative methods for risk mitigation and technological improvements are the main reasons for the lower tariffs of UMPPs. The paper finds that even after appreciation of US$ and an increase in inflation rate, the power tariff of UMPPs would be affordable, but India's increasing power requirements cannot be met by UMPPs alone and capacity addition through other mechanisms would also be needed. Practical implications: The paper recognises the need to extend UMPP mechanisms in the generation of electricity from other sources such as hydro, gas and wind, and emphasises the need to reduce transmission and distribution losses and improve efficiency in India's power sector. Originality/value: The paper presents an assessment of UMPPs framework and identifies how project financing mechanisms and risk sharing between project developer and government can help in reducing the tariff of public utilities.