February 2020

A recent ASSOCHAM study notes that the power sector has been one of the most highly stressed sectors in recent times, with 66 GW of projects facing financial stress. Of these, the largest portion, of around 54,800 MW, is constituted by coal-based power plants.

However, the coal-based segment saw some positive action in the last month. To begin with, there was relief for commissioned thermal power plants that were lying stranded due to the absence of demand from discoms. Auctions were concluded under the second phase of the pilot scheme for medium-term power procurement of 2.5 GW from coal-based power plants. Notably, a lower tariff was discovered in this phase compared to the first round of auctions under the scheme, which was launched in 2018. In the second phase, for which PTC India was the bid aggregator, a tariff of Rs 3.26 per unit was quoted compared to a tariff of Rs 4.24 per unit in the first round. To recall, the earlier bid process for the second phase of the scheme had to be cancelled in April 2019 as the discovered tariff of Rs 4.41 per unit was found to be too high for the discoms. The PPA auctions should help these coal-based projects meet part of their debt obligations, say industry watchers.

In another key development that is expected to improve offtake, the government is reportedly finalising a new scheme that would potentially help stressed thermal power plants to find buyers and improve their plant load factors. As per the proposed scheme, the government has planned to bundle high-cost thermal power with cheaper renewable energy. The scheme is applicable to both commissioned and under-construction projects.

The government recently notified the third round of auctions for the award of coal linkages under the SHAKTI policy to IPPs with long-term PPAs. According to ICRA, this is a significant positive for the sector as the availability of coal linkage will enable plants to declare normative availability, allowing the recovery of fixed charges, and improve their merit order position. Also, unlike the second round of auctions, where there was a restriction on participation by developers (who had won linkage in the first auction), there is no such restriction in the third round of auctions.

That said, the segment is disappointed as there is no mention in the budget of discom reforms or measures to tackle the stressed projects issue. Going forward, it will be interesting to see how some of these planned measures will help in the recovery of stranded assets.

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