Friday 22nd March 2019

    Scheme to buy 2500 MW power via tariff based bidding will provide partial relief to power producers

    The scheme for procurement of 2,500 Megawatt (Mw) of coal-based power capacity for three years from operational coal-based projects without long-term Power Purchase Agreements (PPAs) from the Ministry of Power is likely to provide only a partial relief to power generators, believe experts. Read more

    It should be noted that the Ministry of Power, Government of India has formulated a scheme on a pilot basis for procurement of 2500 MW coal-based capacity for a period of three years from operational coal-based power generation projects without long-term power purchase agreements (PPAs).

    The ministry will select the power generators through a tariff based competitive bidding process, while PTC India Limited will sign the power purchase agreement with the winning bidders and back-to-back power sale agreement (PSA) with state distribution utilities.

    Sabyasachi Majumdar, Senior VP & Group Head, ICRA Ratings says, this scheme will provide a partial relief for the IPP segment given the medium-term nature of the PPAs proposed and significantly large coal-based capacity that is - about 26 GW without any long term PPAs. About 60% of this capacity is operational and balance is under implementation.

    However, he noted, “The scheme is a positive development for the IPPs as it will provide some visibility on PPAs, given the lack of progress in signing of long-term and medium term PPAs over the past three to five years. Also, the state distribution utilities may follow with fresh bids in a similar manner ... in view of the single part nature of tariff with fixed capacity charge being kept nominal at 1 paise per unit and minimum contracted off-take at 55% of contracted capacity.”

    The government has kept the fixed charge nominal while the variable tariff quoted by the power generators will be able to cover the entire cost of generation and supply up to the delivery point. The adequacy of the bid tariff will a key factor for the viability of such PPAs given large capital cost escalation experienced by the recently commissioned coal-based projects and rising coal price levels. Besides, the distribution utilities may not be willing to procure power beyond Rs. 4.0 - 4.5 per unit.

    As the thermal power plants are facing severe financial and operational trouble, experts believe the cost of generation for the coal power projects would depend on the capital cost, availability of fuel linkage and coal price for procurement from open market in case of non-availability of coal linkage for the contracted capacity.

    As per the SHAKTI policy approved by Government of India in May 2017, coal supply under linkage route will be allowed for future medium-term PPAs. In line with this, projects with valid letter of assurance (LoA) or fuel supply agreements (FSA) would be able to draw coal for power supply under this scheme. However, projects without FSAs would remain dependent on open market purchases, mainly e-auction by Coal India Limited and imported coal, thereby leading to higher cost of generation.

    - TradeBriefs Bureau