Post-coal bids, power cos may face Rs 1,350cr deficit: Crisil

The recent coal block auctions might have addressed some fuel supply issues, but private power producers with nearly 10,000 MW capacity may have to face under-recovery to the extend of 65 paise per unit because of aggressive bidding, according to rating agency Crisil said.
"Private power producers with a capacity of 10,000 MW, who bid the highest at the recently concluded coal block auctions, are staring at 65 paise per unit under-recovery in variable cost because of aggressive bidding," the agency's research arm said in a statement here today.
These players could clock under-recovery of Rs 1,350 crore in FY16 because variable tariffs will not cover mining costs and production-linked payments to Government, it said.

Crisil Research estimated the deficit could rise to over Rs 4,500 crore once allotted coal blocks reach peak production.
"The aggressive bids indicate the big premium on fuel security. Bid winners have agreed to forego, on average, mining costs of Rs 650 per tonne and pay an additional premium of Rs 400 per tonne to States in FY16," its Senior Director Prasad Koparkar said.
To offset the resultant 65 paise per unit under- recovery in the variable tariff, recently commissioned or under-construction projects will require an average first-year fixed tariff of close to Rs 3.5 per unit.

"This will be almost 30 per cent more than average fixed tariff quoted in the PPAs signed during the last two years. This will be challenging," he said.

To safeguard returns, they will have to evaluate increasing fixed tariffs. But developers who have already signed PPAs - accounting for a third of the 10,000 MW capacity - will not have this option, Koparkar said.
"Even those that are yet to sign PPAs will find it difficult to quote significantly high fixed tariffs due to intense competition. So the offset available, at best, will be partial. This will put further pressure on the financial position of private power generators."
According to Crisil, the ability of developers to quote higher fixed tariffs may be limited because there is a risk that at some point regulators will cap the fixed tariffs since the stated objective of reverse bidding is to ensure lower rates to consumers.

"What will also curb big increases in fixed tariff is the likely intense competition for signing new PPAs," Crisil Research Director Rahul Prithiani said.
The agency estimates 22,000-25,000 MW of power projects, both operational and expected to be commissioned by FY17, are untied and will compete for new PPAs.