Tuesday 22 March 2016

Jindals may be set for a deal on Chhattisgarh power plant

Mumbai: Sajjan Jindal-led JSW Energy Ltd is in advanced talks to buy a power plant owned by Jindal Steel and Power Ltd, controlled by his younger brother Naveen, said two people directly involved in the discussions.
“The deal is valued at more than Rs.5,000 crore and is to be announced before the 31st of this month,” said one of the two people cited above.
The sale of the 1,000 megawatt (MW) power plant in Chhattisgarh will help the struggling Jindal Steel and Power to meet interest payment obligations and pare overall debt. Jindal Steel, which has reported loss for five quarters in a row, had consolidated debt of over Rs.42,534 crore as of 30 September.
The Chhattisgarh plant is operated by Jindal Power Ltd, a unit of Jindal Steel.
“The debt on Jindal Power’s books is much less than what all of its assets together value. A deal for the power assets will help the parent company access more cash to ease out debt woes on the steel business,” said a senior steel analyst who declined to be identified.
Steel makers in India have been hurt by a steep fall in realizations because of the cheap imports from China, Japan, South Korea and Russia.
Both people cited above said that the deal was discussed at the JSW Energy board meeting on Monday.
A spokesperson for JSW Energy, which has been on the lookout for distressed power assets, denied that it is in talks to buy any particular asset.
“JSW Energy Ltd continues to evaluate various growth opportunities. However, the company is not in specific discussions for any particular project,” said the spokesperson for JSW Energy.
Jindal Steel & Power declined to comment on the sale of the Chhattisgarh plant but said the company is evaluating various options to strengthen its balance sheet.
On Monday, Reuters cited Jindal Steel chief executive officer Ravi Uppal as saying “that a deal is being negotiated.”
Reuters said the deal may be announced as early as this week.
On 18 March, The Economic Times first reported the talks between JSW Energy and Jindal Steel for the 1,000 MW power asset.
Ratings agency Crisil Ltd has rated Jindal Steel and Power’s debt as default, citing delayed payment of interest on term loans due to weakened liquidity. On 11 March, Credit Analysis and Research Ltd (CARE) downgraded JSPL’s debt instruments to a default rating.
In an interview on 10 March, Uppal said the company will try to sell stakes in certain units of its steel business, set up joint ventures with companies in Asia and Europe and seek a buyer for its power assets in India, in an effort to pare debt.
Uppal also confirmed there were delays in meeting interest payments due to the stress in its steel business.
The second of the two unidentified people said that the Chhattisgarh plant is the only power asset the company is looking to sell immediately. “No other power asset from Jindal Power is on sale,” said the person.
Jindal Power has a combined capacity of 3,400 MW.
For JSW Energy, the deal will help increase its capacity from the current 4,531 MW to 5,531 MW.
JSW Energy has been in discussions with Jaiprakash Power Ventures Ltd for its 500MW Bina thermal power plant in Madhya Pradesh. JSW Energy is also in talks with Monnet Ispat and Power Ltd to acquire its unit Monnet Power Co. Ltd, which is developing two coal-fired thermal power plants with a total capacity of 1,050 MW in Odisha.
The two people cited above said that deal discussions for both these assets are still under consideration.
“We have seen stressed sales in the power sector in the past and we will see some more,” said Harish H.V., a partner at Grant Thornton India Llp, a financial advisory.
“The valuation will depend on how much capacity has long term agreements in place and what is the price of that. It will also depend on how much can the debt related to the particular asset be restructured if the asset is a stressed one,” he said.

Experts Comment:
Sale of the 1,000 MW power plant to JSW Energy will help Jindal Steel and Power pare overall debt. The acquisition are becoming common in Indian power industries. It is the best way to increase the installed capacity of the firm.

Wednesday 16 March 2016

Nine-hour power supply to farm sector under study

The Andhra Pradesh government is considering providing nine-hour power supply to the farm sector, said Minister K. Atchannaidu in the Legislative Council here on Monday.
Responding to various queries related to free power to farmers during question hour, the Minister said that the government was bearing Rs. 3,186 crore on subsidy towards free power. He said that instead of three time slots of power supply to pump sets from 4 a.m to 11 a.m, 11 a.m to 6 p.m., and 9 p.m. to 4 a.m, farmers wanted it to be given in two slots. The proposal is under examination, he said.
‘Five star’ pump sets
Another initiative would be to install quality ‘five star’ pump sets which cost double than that of conventional pump sets but they would help in saving 30 per cent of power. The Discoms were supplying quality pump sets to farmers free of cost and the amount could be recovered in three years through the power saved. Another 1.2 lakh new pump sets would be sanctioned under NTR Jalasiri and applications had been invited.
The Central government, impressed with the initiative, offered to give another one lakh five star pump sets to the State, he said. Demand for solar pump sets too was increasing with 4.5 lakh people applying so far and 10,000 solar pump sets would be given this year. He positively responded to suggestion to give solar pump sets on subsidy in Anantapur district and extend the high voltage distribution system.
Steps were also taken to ensure quality power supply and prevent breakdown of transformers due to overload, he said. In case of breakdown of transformers, standing instructions were given to the department to replace them in 24 hours.


Expert's Comment:

Providing free power to the consumers will always burden the Discoms. However with initiatives like providing efficient pumps can help the utilities to save their money. One of the limitation is that the payback will take time.

Tuesday 15 March 2016

Kanjurmarg waste-to-energy plan ready to roll

Mumbai's degraded waste at Kanjurmarg will produce electricity from April. The Rs 4.5 crore Guascor engine from Spain, to convert methane gas into electricity, will arrive at the landfill site on March 25 and the project will be commissioned next month.
If it succeeds, it will be the city's first waste-to-energy project. The earlier one at the Gorai dumping ground for which the BMC even won an award, did not take off. "The engine is already in use in sugar factories, distilleries and even at the Solapur dumping ground where it generates 5MW electricity and is connected to the state electricity board's grid. It will surely work," said Shiju Antony, director, Antony Lara Enviro Solutions. The company has been awarded a 25-year contract for the landfill site.
Of the 141 hectares of salt pan land allotted to the BMC for a landfill site, it has been allowed to use only 66 hectares. Last month, Maharashtra Coastal Zone Management Authority (MCZMA) permitted use of an additional 52.5 hectares of Coastal Regulation Zone-III land for waste processing.
The current technology being used at the landfill site is a bioreactor. Around 3,000 metric tonne of mixed waste is dumped in a 12-hectare cell that has been further sub-divided for proper dumping of waste. When a section is filled with 10,000 metric tonne of it, which takes three days, waste on the fourth day is dumped into a new section. For every four-metre height of waste, two parallel pipes are laid—one to collect the leachate and the other, a perforated one, to collect gas.
The gas is brought to a flaring point where, at present, it is flared so that it does not escape into the atmosphere and catch fire. Once the engine is installed, the pipe will be connected to it and the methane will be converted into electricity.
"Initially we will use it as a captive power plant. The electricity generated will be used by us for street lights at the dumping ground. At present, 3,000 metric tonne of mixed waste daily generates round 380 cubic metre of gas. In the long term, it is estimated to generate 12MW of electricity. Our requirement is 2MW, the rest can be sold by the BMC to generate revenue," said Antony.
It was estimated that methane's release would begin only after 18 months; though, in fact, it started being released within six months. "The quality of waste reaching the dumping ground is largely wet waste and hence the quick generation of methane. There are a lot of plastic bags less than 50 microns and huge quantities of chindi(small pieces of cloth). Plastic bottles and metal are all picked up by rag-pickers, dumper drivers and cleaners as they have monetary value. Very little of it reaches the dumping ground," said Antony. The liquid that drains out from the garbage called leachate has been prevented from seeping into the ground by laying six layers of different materials on the bed of the cell on which the garbage is dumped. Beside the bottom, at every four metres, pipes have been laid to capture the gas and the leachate.
That the leachate does not percolate into the ground is regularly monitored by National Environmental Research Engineering Institute and Maharashtra Pollution Control Board. The leachate is collected in a leachate pond. A leachate treatment plant with a capacity to treat 250 cubic metre of the liquid has also been set up. Some of the raw leachate is recirculated into the garbage depending on the moisture required. The remainder is treated and the water is used for gardening and dust suppression. "This keeps down suspended particulate matter," said Srinivasan Chari, business development manager. The company was awarded the contract in 2009 and is paid Rs 600 per tonne of garbage as tipping fee. Work on waste processing could start only last year as the matter was caught in litigation. Activists had raised issues of mangrove destruction.
At the time, it had said a composting plant would be set up at the site. While the equipment was brought in 2011, work could not start due to court cases. The technology called windrow is being now installed on 12 hectares of landfill site. It will treat another 1,000 metric tonne of waste. "It allows segregation of waste. The plant consists of a material-recovery facility where all recyclable and inert material is separated from biodegradable waste. The latter is put into various cells where the temperature is maintained at 70 degrees centigrade. After 28 days, it will be converted into pure compost."
The dumping mound is maintained at 35 metres on account of aviation restrictions. It's covered with soil so there is no visible garbage except in the area where dumping is on. While stench continues to be a problem though enzymes are sprayed to neutralize it, contractors have set up a citizens helpline (8080032282) to call if affected by it. "We immediately spray the enzymes," said Chari.

Expert's Comment


The waste to energy can be the future of Indian energy source. The potential is huge in the country and with the Govt.initiatives it can become huge business.
It also supports the mission of swachh bharat of the Govt.of India. 


Saturday 5 March 2016

Coal cess hike to pinch merchant power players


While there were low expectations from the Union Budget for the power sector, the doubling of the clean environment cess on coal and lignite to Rs 400 a tonne will lead to producers’ electricity cost rising by Rs 0.9-1.3 per kilowatt hour, estimate analysts. The increase will depend on the grade of coal and distance between mine and power plant. Companies having cost-plus power purchase agreements (PPAs) as NTPCor Reliance Power will not get impacted, as fuel costs are a pass-through. However, these such as JSW Energy, which sells 20 per cent of coal-fired capacity in the open market and therefore exposed to short-term and merchant rates, might feel the pinch since costs will not be pass-through. Among others, Adani Power having nine per cent of total capacity (especially from its Mundra project) exposed to short-term or merchant power will also feel the heat. Similarly, CESC, which can sell about 75 Mw from its Kolkata business as merchant power, might feel the heat.

Overall, analysts at Nomura expect about three per cent impact on JSW Energy’s consolidated FY17/18 earnings, while Adani’s FY17/18 bottom line are expected to be impacted by 12-14 per cent due to low base. Coal India might not be directly impacted, but increase in cess might limit its ability to take price hikes given the weak demand scenario. The government’s high disinvestment target means the stake sale overhang on Coal India and NTPC will continue their stock prices in check.

Nevertheless, there are some positives including the increased outlay for renewable energy. Analysts at Elara Capital believe this would accelerate solar power projects and is positive for NTPC and Reliance Power, as they plan to set up 3.3-Gw solar projects each by FY19.

Another positive is permitting PPA renegotiations in disputed projects, which can help revive capex cycle in power and will be positive for some power players. While this is likely to take a few quarters, renegotiations can benefit players as Adani Power, Tata Power, GMR Energy and RattanIndia Power, say analysts at Elara.

The transmission and distribution sector as well as transformer companies will benefit from the targeted completion of rural electrification by 2018. Hemal Zobalia, partner, Deloitte Haskins & Sells, says long-standing issue on availability of incentive to power transmission companies is answered with additional depreciation of 20 per cent on new machinery being extended for power transmission as well.

Of all, Power Grid, which remains unaffected by the increase in coal cess and is a potential beneficiary of the increase in FPI limit to 49 per cent, is best placed. Analysts at Nomura say Power Grid is best placed with historically high level of foreign portfolio investment in the stock (25.7 per cent as of December 2015).



Expert Comment:

With the increase in coal cess,the tariff rate will rise for those power plants who sell power in short term market.This might change the scenaro of exchange and bilateral market in future. There is good news for transco companies as they have the A.D.scheme available.

Friday 4 March 2016

IEX: Average Market Clearing Price (MCP) on Feb’16 was all-time low at Rs. 2.30 per unit


 

New Delhi: The spot power market continued to be the most competitive option for distribution utilities and open access consumers to procure power with average Market Clearing Price (MCP) on Feb'16 at all-time low of Rs. 2.30 per unit in fiscal 2015-16.

Average MCP at Rs. 2.30 per unit is about 9% lower than Rs. 2.52 per unit in January, even average Area Clearing Prices (ACP) across all bid areas reduced by 6-12% in February, Indian Energy Exchange (IEX) said in a statement. 

IEX which is India's premier power trading platform currently operates Day-Ahead Market (DAM) and Term-Ahead Market (TAM) in electricity as well as Renewable Energy Certificate (REC) Market.

Interestingly, ACP at Rs. 2.51 per unit in the Southern region was even lower than ACP in the Northern region at Rs. 2.64 per unit.

This has particularly been due to increase in generation capacity within the southern region and reduced reliance on import of power from the rest of India.

However, transmission congestion in WR->SR and ER->SR corridors continued, added the statement.

At 2,818 MUs, volume traded in February was marginally lower than volume traded in January (2,929 MUs).

However, the average daily volume in Feb'16 was much higher at 97 MUs in comparison to 94 MUs last month.

Aggregated purchase bids for the month were 3,285 MUs (about 4,720 MW on average daily RTC basis) and sell bids were 5,338 MUs (about 7,670 MW on average daily RTC basis).

About 112 MUs were curtailed in Feb'16, about 26% lower than volume curtailed in January (152 MUs).

The ER->NR and WR->NR interconnections were congested 44% and 40% of the time respectively and the ER->SR and WR->SR interconnections were congested about 44% of the time during the month.

Prices (ACP):

In February, average Area Clearing Price (ACP) dipped across all the regions.
In North-East, East and West, ACP was Rs 2.11 per unit, about 6% lower than last month.
In South, ACP was Rs 2.51 per unit, 12% lower than the previous month.
In North, ACP was to Rs. 2.64 per unit, 8% lower over the previous month.



Volumes:

A few key power market highlights are as given below:

Total Sell bids - 5,338 MUs
Total buy bids - 3,285 MUs
Total Cleared Volume - 2,818 MUs

The Northern and Southern States were Net Buyers while the Eastern, Western and North-Eastern States were Net Sellers



Participation:
1,171 participants traded in the spot market on an average daily basis. The highest participation was on 25 February, 2016 when 1,237 participants traded on the Exchange.

Term-Ahead Market:
About 25 MUs were scheduled during the month, mainly in the Intra-day and Day Ahead Contingency segments, IEX statement added.
 


EXPERT COMMENT:

From this we can see the future of short term power market in India. The prices are way below than the long term PPA signed by the Discoms. This will help the Discom to purchase power at very low rate which can reduce their burden to buy expensive power.However the states commissions should make lucrative regulation so that the short term power market can grow at faster pace.