India has witnessed a flurry of activities, starting early 1990s when it went through the `rituals' of liberalization and privatization (by allowing private sector to set up new generation projects), unbundling, corporatization and setting up of regulatory agencies for price regulation. From the year 2002-03, attention has shifted to distribution with the growing voice of the media blaming the government for starting the power sector reforms at the generation-end rather than the distribution-end as no perceptible benefits of reforms accrued to the end user. Today, the focus is back on generation with the announcement of seven Ultra Mega Power Projects (UMPPs) to be set up through international competitive bidding, which will add to 28,000 MW to the installed capacity. Competition in any industry is encouraged to minimize costs, restrain prices and ensure that the benefits reach the consumers. The common questions are: To what extent are the costs and the resultant tariffs likely to come down by encouraging UMPPs through competitive bidding? What are the cost economies of UMPPs? What are the ecological implications of UMPPs? What are the major motivating factors for the renewed policy attention on generation? This study analyzes the questions and draw conclusions on whether UMPPs are the best solution for problems plaguing the generation industry.

Until the early 1970s, almost all Electricity Supply Industries (ESIs) were vertically integrated, State-owned or regulated, statutory monopolies. The oil shock of the 1970s, ushered in fundamental reforms in utilities governance. A new perspective that triggered restructuring of the ESI was, `if regulation could be confined to the core natural monopoly network, and competition introduced for the services supplied over the network, then efficiency and innovation could be encouraged'. The next 30 years witnessed reforms in the sector in a large number of countries. The reforms encompassed, restructuring through unbundling the vertically integrated utility into generation, transmission and distribution entities, corporatization and privatization (either through sale of assets of state-owned entities or through attracting new investments from private sector). The motivating factors for embarking on reforms varied from country to country—many due to external pressures, some on compulsion to raise revenue by sale of assets (Eastern Europe) and many more, particularly the developing countries, on the `need' to attract private investment to sustain the growth rate of the economy.

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