Captive power producers face Covid-19 brunt as prices turn unviable

Executives from Indian Energy Exchange pointed out in July that volumes from CPPs went down drastically post March, in tandem with traded prices

The Covid-19 pandemic, followed by lockdowns that hit industrial and commercial activities, has drastically curtailed operations of captive power producers. Companies are finding that sale price on the energy exchanges is not viable even as their own captive demand is minimal.
 

Some large industries, including steel and cement, rely on their own captive power capacities to ensure steady supply for critical processes. Some of these companies also sell part of the power generated to the energy exchanges. 
 

Executives from Indian Energy Exchange (IEX), in July, pointed out that volumes from captive power plants went down drastically post March, in tandem with the traded prices. For the day ahead market, average market clearing price for August 15 was Rs 1.64 per unit (kilowatt/hour). Captive power (that trades between Rs 2 and Rs 2.35 per unit) sale on the exchanges is economically unviable.
 

Shree Cement is one such company with captive power capacity, some of which is sold on the exchanges.
 

“Owing to the lockdown, power demand was impacted and some of our power capacities were shut. Power demand has not completely recovered yet. Right now, power plants are shut because there is no demand; viability is the second part,” said Prashant Bangur, joint managing director (MD) of Shree Cement. He said the company operates a capacity of 650 megawatt (Mw), of which 300 Mw is merchant power.

 

JSW Energy, in an earnings call in July, had said sale to distribution companies went up 8 per cent during the June quarter, whereas group captive sales was down by 25 per cent. JSW Energy has a power supply agreement with group company JSW Steel. Prashant Jain, joint MD and chief executive, on the call, said: “Our contraction in generation was primarily from the group captive customers because of the lockdown. They had to stop their operations, and then they are now back to normal.”
 

Rajiv Agarwal, secretary general of Indian Captive Power Producers Association, pegs the country’s total captive power capacity at 75 gigawatt (Gw).
 

He said a significant portion of this was hit due to a combination of higher coal prices and lower power demand. Agarwal said of the 50-55 Gw thermal-based captive power capacity, 40-50 per cent of the capacity is being utilised.
 

“Whatever captive plants are producing is not economical for the power exchange right now. Overall power demand from industries itself is very low. Even plants, which are not selling to the exchange, are operating at 40-60 per cent utilisation,” Agarwal said.
 

The issue boils down to the cost of production. Agarwal said Coal India prices, due to the e-auction policy, is higher than that of imported coal. However, demand and sale price for power is low.
 

Bangur said it was not unusual for captive power plants to shut down capacity during low demand. He remains unsure when captive power units will start operations again. He, however, said earnings before interest, taxation, depreciation and amortisation would remain largely unimpacted. “Merchant power contribution is not as significant now as it was 5-7 years ago. As we have grown our cement business, it is just 5 per cent of our turnover and Ebitda,” he said.