After a long lull, there is some visibility on the power purchase agreement (PPA) front for power gencos. In October this year, the first round of PPAs were signed under the government’s medium-term power procurement scheme. Power trader PTC India signed medium-term PPAs for 1,900 MW of coal-based power capacity with seven companies and five states.
The states that signed PPAs under the pilot scheme, which was launched in April this year for procuring 2.5 GW of power on a competitive basis, are Telangana, Tamil Nadu, West Bengal, Bihar and Haryana. “The PPAs are expected to lessen the burden and lead to efficient utilisation of the capacities of some of the stressed coal-based power plants. This scheme endeavours to achieve a balance in allocation of risk-reward to the transacting parties,” notes the power ministry. After this round, PTC is reportedly planning to issue a tender for another tranche of 2,000-3,000 MW in the coming months. A look at the details of the scheme…
Bid details
In April 2018, the Ministry of Power issued guidelines for a pilot scheme to facilitate the aggregation of procurement of power (2,500 MW for three years) from commissioned coal-based power plants through competitive bidding. PFC Consulting Limited conducted the bid process for selection of capacity from different projects on the DEEP e-bidding portal. PTC India was the aggregator.
PTC received bids for the procurement of 1,900 MW at a discovered fixed tariff of Rs 4.24 per kWh. According to the bidding documents, the quoted tariff will remain fixed for the three-year PPA period without any escalation. The seven companies that signed PPAs are IL&FS Energy for 550 MW of capacity, RKM Powergen for 550 MW, SKS Power for 300 MW, MB Power (Madhya Pradesh) Limited for 175 MW, Jindal India Thermal Power for 125 MW, Jhabua Power Limited for 100 MW and JP Nilgiri Project for 100 MW. According to the scheme, a maximum of 600 MW capacity was to be allocated to a single entity. The state-wise power offtake from these plants will be: Telangana 550 MW, Tamil Nadu 550 MW, Haryana 400 MW, Bihar 200 MW and West Bengal 200 MW.
According to news reports, IL&FS Energy will supply 550 MW to Tamil Nadu while RKM Powergen will supply 550 MW to Telangana. Jhabua Power Limited and JP Nilgiri Project will supply 100 MW each to West Bengal. MB Power (Madhya Pradesh) Limited will provide 175 MW to Haryana while SKS Power will sell 300 MW to Haryana and Bihar. Jindal India Thermal Power will supply 125 MW to Bihar.
Under the scheme, there will be no escalation in tariff during the three-year period on any account. The discoms can reduce load up to 55 per cent of the agreed capacity. Further, the minimum offtake by PTC will be 55 per cent of the contracted capacity. Any procurement below 55 per cent will entail compensation to the power generator equivalent to the difference between the tariff payable as per the PPA and the daily average market clearing price on the power exchanges. PTC will get a discount in tariff for procurement beyond 55 per cent of the contracted capacity on a monthly basis. The discount would be at the rate of 1 per cent of the tariff for every 5 per cent incremental procurement beyond 55 per cent.
Impact
The scheme has provided partial relief to the stressed gencos. “Medium-term PPAs are expected to provide some relief to the stressed power assets by lessening their burden and improving capacity utilisation. But the move is unlikely to help banks in resolving these stressed assets as the three-year PPA period seems insufficient. Inadequate availability of coal will be a key challenge for many of the plants that do not have fuel supply agreements (FSA) in place. Even though buying coal auctioned under the SHAKTI scheme is an option, procurement will come at a much higher premium,” states CARE Ratings. Moreover, the capacity stranded in the country owing to the absence of PPAs is much higher (around 15 GW) than the quantum being procured under the scheme.
That said, with power demand showing signs of recovery and a surge in short-term prices, the scheme will do well to encourage more states to tie up PPAs in future bidding rounds.
