While several power companies that have been allocated captive coal blocks recently are left high and dry with the lack of assured buyers for electricity under power purchase agreements (PPAs), even the limited number of PPAs signed in recent years could now unravel owing to sluggish demand and financially-crippled state distribution companies.
With earlier demand projections proving to be gross overestimates, the Rajasthan government is learnt to have terminated power purchase obligations for all but two of the nine PPAs signed by it in 2013. This would leave the state’s distribution company RVPN with obligation to buy just 500 MW of power instead of 1,975 MW envisaged earlier under long-term agreements with producers.
The state’s move, prompted also by debt-laden RVPN, was earlier endorsed by the state electricity regulatory commission (SERC).
Rajasthan’s move, a sign of persisting problems in the power sector, would jeopardise several power producers including Lanco Babandh, PTC Athens (Chattisgarh), SKS Power, PTC-MB Power and KSK Mahanadi. These firms had signed PPAs with RVPN in 2013, after emerging as top bidders under the Case 1 bidding mechanism.
In fact, Rajasthan had floated tenders for purchasing 1,000 MW of power in 2012. The state eventually signed PPAs with nine companies for a capacity of 1,975 MW.
RVPN had filed a petition before the SERC in November last year, seeking its approval to reduce the PPA capacities to just 500 MW. In other words, it sought cancellation of seven PPPs and retention of only two — the 250 MW PPA with PTC-Maruti Clean Fuel and another agreement for purchase of the same amount of power from PTC-DB Power. For both the retained PPAs, the firms concerned had submitted the bids under the aegis of state-run Power Trading Corporation India (PTC).
The SERC, sources said, approved the discom’s plea for cancellation of the PPAs on the ground that the commission-appointed energy assessment committee (EAC), a body that forecasts power demand for 12-60 months in advance, had reviewed its earlier decision and recommended only 600 MW of long-term PPAs. “If the petitioner based on relevant considerations and EAC recommendation has now come to the conclusion that they may not need 1,000 MW of power for which approval of the commission was obtained and need only 500 MW, the same deserves to be accepted,” the commission noted in an order issued late last month.
The commission added that it was the requirement of the state which should prevail as accepting purchase obligations beyond its capacity would in turn burden the consumers. The long-term levelised tariff discovered in case of the seven cancelled PPAs ranged between Rs 4.81 and Rs 6.03/unit.
Given the deteriorating financial health of discoms, there has been a dearth of demand for power and this has manifested in the fact that not many PPAs have been signed in the country over the last three years. While in 2012, bids were invited for PPAs amounting to 10 giga watts (GW), purchases tied up by power companies under PPPs since then has been only a small fraction of that. In June this year, PPAs for supply of 2,400 MW of electricity to Andhra Pradesh’s distribution companies were signed, and the tariffs discovered seemed remunerative to the power producers, causing analysts to predict a revival of demand. Although the weighted average tariff of Rs 4.57 per unit for the first year of the 25-year PPAs quoted by the top five bidders for supply of power to Andhra discoms under the newly designed Case 1 mechanism was among the lowest in the last five years, it included a record-high fixed-cost component of 73%, implying the risk would lie mostly with the buyers and the end consumers rather than with the developers.
But that seems to be a one-off event. Debt-laden discoms in other states are in no hurry to sign new PPAs. The Rajasthan discom, for example, has been struggling to stay afloat with outstanding loans of Rs 73,000 crore and accumulated losses of Rs 69,000 crore.