New coal policy to benefit pvt independent power plants: ICRA

The new coal allocation policy will benefit private independent power plants having combined capacity of 28 GW that were adversely affected by lack of fuel supply pacts, rating agency ICRA said today.
"The implementation of the new coal allocation policy namely 'SHAKTI' or the scheme for harnessing and allocating koyala (coal) transparently in India, is a positive development for the domestic thermal power generators, with a combined capacity of around 28 GW in the private IPP segment," ICRA said in a statement.
Hitherto, these were adversely affected by lack of fuel supply agreements (FSAs), it said, adding that this includes both units with power purchase agreements (PPAs) and those without them.

Sabyasachi Majumdar, Senior Vice President and Group Head, ICRA Ratings, said, "The ability of the IPPs with existing PPAs and without LoAs to secure coal linkage in bidding process will be dependent upon the quantum of quoted tariff in existing PPA and the distance of coal-linked mine from the project.
In this context, any aggressive bidding to secure coal linkage may lead to a risk of under-recovery in variable cost. Even IPP capacity without FSAs and without PPAs estimated at 16.9 GW, would benefit from this policy, it said.
The signing of FSAs with existing holders of Letter of Assurances (LoA) from CIL will be subject to meeting all milestones, including commissioning.

"It is noteworthy that operational coal-based IPPs with an aggregate generation capacity of 8.3 GW, having long-term PPAs with state distribution utilities, are affected by lack of long-term fuel supply arrangements from CIL," it said.

For IPPs with existing PPAs and without LoAs, the award of coal linkage shall be through an auction process, based on discount to quoted tariff in PPA.
For IPPs without PPAs, linkages shall be made available under the auction route with bid parameter being premium over the CIL notified price. However, the supply of coal under this linkage shall be subject to availability of valid long-term PPAs or medium-term PPAs with distribution utilities.

"The overall slow progress in signing of long-term and medium-term PPAs by state distribution utilities will remain a key area of concern, given that the coal drawl is only subject to a PPA tie-up. Risks for such IPPs will remain high," Majumdar added.