Monday, 14 November 2016

Around 25,000 Megawatt of thermal power capacity running without long term pacts

My View:

The Discom's are preferring to buy cheaper power from exchanges or with short term bilateral contract. It is really hurting the generators as they are not able to get assurance related to power purchase. It would create problems in generation segment.


Thermal power projects of more than 25,000 Megawatt (MW) capacity are operating without long term power purchase agreements (LTPPA's) with state owned discoms, according to ICRA.

State owned discoms have created a trend over the past two to three years, of buying power from trading markets for a cheaper price when compared to signing fixed rate PPA's with thermal power plants, the reaserch agency added in its recent report.

This decision by state owned distributors has given them the freedom to buy power at cheaper rates from exchanges and also create a highly competitive bidding environment to lower tariffs even further.

Discoms are expected to sign LTPPA's in the future, with the implementation of UDAY across the country and improvement of discoms financial health.

Only four states namely Andhra Pradesh, Kerala, Telangana and Uttar Pradesh have invited bids to sign long term PPAs for an aggregate bid capacity of 7.5 GW.

Out of these, PPAs have been signed with utilities in Kerala (865 MW) and Telangana (500 MW) while discoms in Andhra Pradesh (2,400 MW) and Uttar Pradesh (3,800 MW) are yet to sign the PPAs, ICRA added in its report.

The 25 GW in the private IPP segment remains exposed to price and volume risks in the short term trading market, given the absence of LT PPA bids. This, in turn, has also impacted the ability of such IPPs to secure cheaper source of domestic coal under the fuel supply agreements with Coal India Limited (CIL) and its subsidiaries, given that the availability of such coal to IPPs is subject to tie-up of their capacity under long-term PPAs.

Uttar Pradesh Power Corporation Limited (UPPCL) in its recent tender for supply of 3,800 MW under design, build, finance, own and operate (DBFOO – case I) route over a period 15 years, has received bids in range of Rs 3.9 - 5.5 per nit from IPPs, according to industry sources. UPPCL has received bids totaling 6,652 MW from 18 power companies against requirement of 3,800 MW for supply starting from October 2016.

The power requirement was divided into three parts, based on fuel source, with 2,800 MW based on domestic coal linkage, 500 MW based on imported coal and 500 MW based on captive coal mine.

The lowest tariff quoted for supply using domestic linkage coal is at Rs 3.94 per unit, using coal from captive mines stood at Rs. 3.95 per unit and using imported coal stood at Rs. 4.06 per unit.

These tariffs are lower than the L1 tariff discovered through case-I bidding by the discoms of Andhra Pradesh at Rs 4.27 per unit and Kerala at Rs 4.29 per unit in the recent past, signifying increasing competition amongst thermal IPPs to secure long-term PPAs.

The heightened competition can be partly attributed to the high off-take risks for the power generation segment, wherein recently commissioned and under-construction capacity of about 24-25 GW in the private IPP segment does not have long term PPAs.

This is on account of the weak financial profile of the state owned discoms, which has constrained signing of long-term PPAs by the discoms. Also, the upward trend in quoted tariffs by IPPs since 2012 also led to slow progress in signing of long term PPAs by discoms.

Discoms have been reluctant to sign long-term PPAs at the higher tariffs offered by developers, despite the continuing power shortages in some states. Instead, discoms in a few states are more inclined to procure power on a short / medium term basis.


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