Rlys plan to seek Competitive Bids from Power industry, source from Electricity Exch & reach Bilateral Arrangements

New Delhi: In an attempt to leverage its position as the largest consumer of power in the country, Indian Railways plans to reduce its electricity bills by nearly a third by seeking competitive bids from power producers, sourcing from electricity exchanges and reaching bilateral arrangements.

Railways needs about 12 billion units of electricity a year, with consumption growing at an average 5% every year. Its power bill is estimated at Rs.11,000 crore for the next financial year. “Although a bulk consumer, Railways pays extremely high charges for traction power,” railways minister Suresh Prabhu said in his budget speech in Parliament on Thursday. “It is proposed to procure power through the bidding process at economical tariff from generating companies, power exchanges and bilateral arrangements. This initiative is likely to result in substantial savings of at least Rs.3,000 crore in next few years.”

In 2013, the then railway minister Pawan Kumar Bansal announced the setting up of a Railway Energy Management Co. to harness solar and wind energy to reduce the railway network’s dependence on power supplied by the state electricity boards, which is costly and often erratic.

Analysts on Thursday welcomed the announcement by Prabhu. “Earlier also, the railways has attempted to utilize open access to optimize its electricity costs. With increasing levels of track electrification, it may be now technically and commercially feasible to source power other than from the state electricity boards,” said Debasish Mishra, Senior Director (Consulting) with Deloitte Touche Tohmatsu India Pvt. Ltd.

Prabhu also unveiled plans to set up 1,000 MW of solar power generation capacity.

The government has rolled out an ambitious programme to promote solar energy by enlisting the Indian Army, Indian Railways and central public sector units in the effort and providing them with grants on the condition that they source solar equipment from domestic manufacturers.

“To reduce dependence on fossil fuels, it is intended to expand sourcing of solar power as part of the solar mission of railways,” Prabhu said. “Further, 1,000 MW solar plants will be set up by the developers on railways/private land and on rooftop of railway buildings at their own cost with subsidy/viability gap funding support of the ministry of non renewable energy in next five years.”

The BJP-led government has raised an earlier solar energy target of achieving 20,000MW capacity by 2022 fivefold to 100,000MW. The central government is also targeting wind power capacity of 60,000MW by then. Of India’s installed power generation capacity of 255,012.79MW, green energy has a share of 12.42%, or 31,692.14MW.

“Competitive procurement of traction load and investing in solar rooftop generation for station load is an excellent strategy to reduce the railways’ electricity costs,” added Mishra of Deloitte.

The railways has been trying to tap the renewable sources of energy to help the transporter avail of fiscal incentives, including tax breaks and depreciation benefits, besides a chance to earn carbon credits.

In Thursday’s budget, Prabhu set Indian Railways an operating ratio target of 88.5% for 2015-16, compared with 91.8% in the current year.

Operating ratio is a measure of efficiency and compares operating expense to net sales.

“Achievement of operating ratio of 88.5% will depend partly on fuel cost savings, and largely on freight rate increase for bulk commodities,”said Manish Agarwal, Partner and Leader (Capital Projects and Infrastructure Practice) at the Indian unit of PricewaterhouseCoopers.