Thursday, May 31, 2012

Orissa Government invites EOI for 'Smart Grid' Solutions - A new variant of Distribution Franchisee

CESU, Orissa has invited Expression Of Interest (EOI) on "Smart Grid Solutions for Energy Management & Energy Efficiency" (SGS-EMEE) on additional revenue sharing basis through Built-Own-Operate-Transfer (BOOT) model in its 12 divisions (in 4 circles), out of 20 divisions. The project is based on "Power Distribution Operations in Identified Divisions" model for a contract period of 5 years.

This CESU model differs from the prevalent 'Input Based Distribution Franchisee (IBDF)' model and also 'Collection Based Revenue Distribution Franchisee (CBDF)' in following key aspects:
  1. Capex Investment: Operator is expected to bring investment only for Smart Metering (LT & HT customers, transformers and 11kV feeders), AB conductors and customer services. So this is a capex light model. Rest investment will be done by the Licensee. This model is mainly intending to curb commercial losses and improve customer services through a private player. The Licensee will take care of the Technical losses through network investments.
  2. Scope of work: This model's scope of work (as described below) is a sub-set of IBDF model, while a super-set of CBDF model. 
  3. Key Bidding Parameter: In this model, the bidder would have to bid on percentage revenue sharing with the licensee for all 5 years (as described below in details). The incremental revenue generated i.e. RPU multiplied by energy input over and above the baseline data in the project area shall be shared between the Project Developer and CESU in the ratio of 60:40 in the 1st year of operation and thereafter 50:50 in the 2nd, 3rd, 4th and 5th year. In IBDF model, bidding happens on 'Input Price' for all tenured years, usually ranging from 10-20 years.
  4. Tariff Indexation: In this model, tariff changes are impacted through direct proportionate changing of base revenue per unit (RPU). In IBDF model, there is more involved calculation of tariff indexation ratio calculated monthly and accordingly changes in the quoted bid 'Input Price'.
  5. Contract period: This is a short contract (5 years) light capex model with investment to be made in first 3 years. IBDF, on the contrary, being a high capex model, is a long contract (15-20 years) with most investments done in 10 years.
As per the revised RFP clauses, Qualification criteria is as follows:
  • Technical Criteria
    • Project Developer should have experience in one or more of the following areas for a minimum period of 2 years:
      • Working as a Licensee or Franchisee
      • Working on implementation Projects in Distribution area
      • Working on Smart Grid projects
      • Working service provider to franchisee/licensee operations relating to distribution functions
  • Financial Criteria
    • Project Developer should have an average Annual  Turnover/Revenue of Rs. 50 Crore and Net worth of Rs. 25 Crore during last two financial years. (i.e FY 2010-11 & 2011-12)
EOI can be submitted by a consortium having not more than three members in which case
all the eligibility criteria can be met by any member of the Consortium. Project Developers who have applied for a complete Circle or at least three Divisions in a Circle shall be preferred.

Key Scope of work:
  1. To reduce AT&C loss level in the area to about 15%, with 100% metering of  customers, transformers (DTRs) and 11KV Feeders at the earliest possible time.
  2. To achieve the per unit collection in  the project area more than equal to Bulk Supply Tariff (BST), (as determined from time to time by OERC) from 25th month onwards from the date of operation.
  3. To improve customer satisfaction with provision of customer call centres, mobile fuse call, etc.
  4. To take care of all last mile infrastructure requirements from distribution transformers (DTR) onwards up-to consumer premises and include DTR Meters, Consumer Meters, AMR, AB Cables, Automation, as well as Technology induction.
  5. To carry out operational activities like metering, billing, collection, maintenance, safety, etc of the distribution assets.
Key performance parameters:
  • Cumulative Input Energy across 12 Div. - 2950.25 MU
  • Avg. Billed Revenue per Div. is Rs. 40 cr. ranging from Rs. 10 cr. to 106 cr. (2010-11)
  • Total consumers across 12 Div.- 949650 (almost 80% rural consumers; 40K - 100K LT consumers per Div., with HT consumers ranging from 0-111 per Div.)
  • Average Collection Efficiency - 93%
  • Average Distribution Losses - 55%
  • Average AT&C losses - 58%
  • Number of DTCs per Div. ranging from 434 to 2892 (ranging from 13 to 165 MVA)
  • Average DTC metering at a Div. stands at 40% (No information on consumer metering)  
Bidder Evaluation Process:

CESU, has defined a 4 pointer weighting scale (Experience, Team, Methodology for Loss Reduction & Financials) to evaluate each bidder proposal. A minimum 70 out of 100 will be required for qualification. 

Based on the overall ranking, the Division(s)/Circles shall be allotted to the qualified applicants. Based on the competition, there will be reverse bidding for share of revenue above the base case with the licensee.  

New Entrant Strategy:

All 12 divisions are rural dominated (80%) with major commercial losses coming from metering, billing and collection side. This model appears to be an interesting business proposition to new entrants, given its capex light, mild QR and short tenure contract terms. It will be a great entry strategy for new players to build learning by winning upon one of this projects. However, the document is little constrictive, as it forces the bidder to bid either at a full Circle level or minimum 3 divisions at a Circle, which again increases the capital and operational risks. This is surely a good innovation in distribution franchisee space (though CESU and their transaction advisor deferred to call it such) and could be a starting step to tap a much bigger rural power market.
Last date of bid submission has been revised to 6th June, 2012 from 29th May 2012.
For more information, please see:
Posted by: Kunjan Bagdia @ pManifold

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