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New power plants face strain on insufficient off-take agreements: India Ratings

About 37 BU of generation likely to be foregone annually, unless sold through short-term markets

BS Reporter  |  Mumbai 

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The power plants commissioned since April 2014 with a capacity of 13,900 Mw face financial uncertainties due to lack of sufficient offtake agreements and transmission constraints. India Ratings and Research (Ind-Ra) in its report estimates that the annual capacity charge losses could be as high as Rs 5,100 crore (excluding return on equity) for these plants. Capacity charges could be partially recovered, if power is produced by these plants and sold in the power exchanges or through merchant power sale. Low prices of imported coal might allow these plants to be reasonably competitive at the generation cost (excluding return on equity) of about Rs 3.6 per unit and if they are located near the coastal region. However, stranded generation from these plants for a year might be as high as 37 billion units (BU) compared with the total traded short-term volume of about 99 BU in FY15.

ALSO READ: Efficiency of India's coal-based power plants way below global India’s coal-based power plant capacity was 167,207 Mw at end-June 2015 and 8.3 per cent (13,900 Mw) of the total capacity was added from April 2014-June. Of the newly-commissioned plants, the capacity of 40 per cent of the plants is under strain and 37 BU of generation might be foregone annually, unless sold through short-term markets. While 70 per cent of the power is tied up through long-term/medium-term offtake agreements, about 1,300 Mw of the tied-up power encounters transmission constraints. Transmission constraint means that electricity cannot be transmitted from the location of generation to the location of demand.

The weighted average price of electricity transacted through power exchanges is Rs 2.5 per unit and Rs 2.35 per unit in Power Exchange India Limited (PXIL) and Indian Energy Exchange (IEX), respectively (CERC, May 2015). Any further protraction of the subdued short-term rates could exacerbate these losses.

Ailing finances, expectation of a high bid price (based on case 1 bidding pattern) and prevailing short-term tariffs preclude many state utilities from cobbling long-term contracts. With over 5,500 MW of capacity lined up for commissioning in FY16, there is increased uncertainty of timely debt service for these projects in the absence of a strong off-take agreements/evacuation capacity, says Ind-Ra Associate Director Siva Subramanian.

The power demand and supply situation is constrained by the lack of adequate inter-regional transmission capacity. Consequently, surplus power from the eastern and the western regions is unable to cater to the demands of the northern and southern regions.

ALSO READ: Power Ministry issues draft tender for stranded gas power plants

The seemingly lower power deficit position, contributed partly by load shedding, although could be short term, intensifies the stress on operating environment for these projects. Despite riding over the difficult construction period including overcoming land issues and delayed fund injections, the power projects are struggling to transition into the next stage of the project life cycle.

Subramanian concludes, "Increased focus on the transmission sector rather than award of projects through competitive bidding for inter-state infrastructure could have some salutary effect on the power sector. Additionally, the power sector will stabilise over the longer term. We believe the consolidation in the sector will continue.'' STAYING POWER

  • Ailing finances, expectation of a high bid price and prevailing short-term tariffs preclude many state utilities from cobbling long-term contracts
  • With about 5,500 Mw of capacity lined up for commissioning, there is increased uncertainty of timely debt service for these projects in the absence of a strong offtake agreements/ evacuation capacity
  • India’s total coal-based power plant capacity was 167,207 Mw at end-June 2015 and 8.3 per cent (13,900 Mw) of the total capacity was added from April 2014-June 2015
  • While 70 per cent of the power is tied up through long-term/medium-term offtake agreements, about 1,300 Mw of the tied-up power encounters transmission constraints

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First Published: Tue, August 04 2015. 00:33 IST
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