1. PPAs power up in boost for gencos

PPAs power up in boost for gencos

After a two-year lull, the momentum in the signing of power purchase agreements (PPAs) by state-run utilities has picked up, reflecting a pick-up in demand for electricity and boosting the confidence of power companies.

By: and | New Delhi | Published: August 22, 2015 12:46 AM
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After a two-year lull, the momentum in the signing of power purchase agreements (PPAs) by state-run utilities has picked up, reflecting a pick-up in demand for electricity and boosting the confidence of power companies.(Reuters)

After a two-year lull, the momentum in the signing of power purchase agreements (PPAs) by state-run utilities has picked up, reflecting a pick-up in demand for electricity and boosting the confidence of power companies.

Given the PPA plans firmed up by the state electricity boards (SEBs), the current year would see the highest capacities being tied up by them under long-term agreements with suppliers after 2011 when new PPAs peaked.

Uttar Pradesh alone would be inviting bids for procurement of 3,800 MW under long-term agreements this year. Additionally, Indian Railways, in May, floated tenders for supply of 1,010 MW for a period of three years. If the PPAs signed by Andhra Pradesh for procuring 2,400 MW of power earlier this year is included, that would take the total PPA capacity to 7,210 MW. This marks a big improvement from last year’s PPA figure of 2,648 MW.

UP has bifurcated its total power requirement into two parts: 2,800 MW to be procured from developers with fuel supply agreement with Coal India for fuel at concessional rates and another 1,000 MW to be bought from developers who have been allocated coal blocks in auctions held earlier this year.

A separate category for power producers with captive coal mines was created as the terms of PPAs would vary from those with coal linkages. The central government’s advisory to all states dictates that the fixed cost for a captive coal block-based producer be capped to pre-empt loading of variable cost onto the fixed cost component of tariff.

However, experts caution that some of the PPAs proposed might not materialise. “A few discoms had in the past issued tenders for large capacities but few have translated into PPAs. This is because current Case 1 model for bidding is complex and takes time for discoms to analyse the implications. The tariffs determined through competitive bidding could sometimes be a dampener for SEBs,” Kameswar Rao, partner at PricewaterhouseCoopers, told FE.

UP has the one of the highest peak power deficit among states, amounting to nearly 4,000 MW, which is nearly 15% of the total peak demand compared with 2-3% peak-time shortage for the country as a whole. This has led to severe load shedding in the state. Additionally, the state purchases relatively expensive power at an average of Rs 5 per unit but has not shown interest in procuring power from the spot market to bridge the deficit despite rates being cheaper by half.

As for the railways, it has invited applications for the purchase of 1,010 MW, which has been divided into three parts for three different regions.

As per the notice issued, the transporter is looking to procure 440 MW for the western region, 350 MW for the eastern region and 220 MW for the northern region. Unlike UP, which is seeking long-term PPAs of 15 years, railways’ procurement will be for three years.

An official at the Railways Energy Management Company told FE that the railways was testing the market with short-term contracts and would go for long-term PPAs in future. “Generating companies are at historically low PLFs (plant load factors), and even medium-term contracts will attract robust bids, especially where the buyer is creditworthy such as the railways,” Rao said.

According to rating agency Crisil, nearly 10,000 MW of thermal capacity in the country is without PPAs, which has made these developers struggle to service their debt. Developers hit by the reduced pace of signing of new long-term contracts include GMR Infra, Essar Power, Adani Power and Jaiprakash Power, with a combined untied capacity of over 4,200 MW. All these firms bagged coal mines in the auctions held in March. These companies would now try to get into PPAs in the category carved out exclusively for them.

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