Auction of coal linkages under SHAKTI positive for power sector: Icra

Auction of coal linkages under the SHAKTI policy to independent power projects (IPPs) will have a positive impact on coal-based power plants, ratings agency Icra said on Thursday.

The Central government had recently notified the third round of auction for award of coal linkages under SHAKTI (Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India) to independent power projects having long-term power purchase agreements (PPAs), Icra said in a statement.

"This will have a positive impact for coal-based power plants. The government has proposed the minimum tariff discount to be quoted by the bidders for securing coal linkage at 7 paise per unit," it said, adding award of fresh coal linkages by the government is positive for the power sector.

However, the high base tariff discount and 90 per cent cap on quantity under the third round of auction are negative for the IPPs, it said.

The latest discount is higher than 1 paise per unit base discount set under the first round of auction held in September 2017 and 4 paise per unit base discount set under the second round of auction for coal linkages held in May 2019.

"The base discount for the third round of auction is equal to the bid discount discovered in this second auction," Icra said.

Sabyasachi Majumdar, Group Head & Senior Vice President, Icra, said the availability of coal linkage would enable the plants to declare normative availability allowing recovery of fixed charges and improve their merit order position.

Moreover, the winning bidders can offset the discount offered in tariff to some extent through efficiency gains in station heat rate and auxiliary consumption. Further, the higher discount in tariff would be positive for the distribution utilities.

"On the flip side, the increase in base discount is a negative for coal-based power projects, given that most of the coal-based assets without fuel linkages are financially stressed. They are also likely to be facing under-recoveries in fixed charges under their PPAs because of significant increase in project capital cost and fine tariffs quoted under the competitive bidding for securing long-term PPAs," he said.