Private electricity generators object to the latest coal linkage auction

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Published: January 7, 2020 5:10:20 AM

Power producers claim that there are “high risk” factors associated with the two-step auction process as only plants which manage to secure PPAs within two years after the auction will receive coal.

Private electricity generator, coal linkage auction, HLEC, economy news, electricity The last date for power plants to apply to participate in the auction is Tuesday.

Private electricity generators have expressed their concern over the latest auction for coal linkage being conducted by Coal India (CIL) for power plants without power purchase agreements (PPAs). In a letter to Union coal minister Pralhad Joshi, the Association of Power Producers (APP) has claimed that the auction methodology is not in line with the recommendations of the high-level empowered committee (HLEC) which was constituted to address issues of stressed thermal power projects.

Power producers claim that there are “high risk” factors associated with the two-step auction process as only plants which manage to secure PPAs within two years after the auction will receive coal. There is a minimal possibility of any private power plant getting access to the coal awarded in this auction since there are no visibility of PPAs in the near horizon. The last major bid for long term PPA was held in 2016 by Telangana. Power producers also said that the auction involves high risk of forfeiture of bid security, which is about Rs 1 crore per lakh tonne. A 600 MW coal-based plant, at 85% PLF, roughly uses 26-28 lakh tonne of coal every year.

The last date for power plants to apply to participate in the auction is Tuesday. Union power minister RK Singh had earlier mentioned that such auctions is not a workable solution amid such dearth of PPAs. The industry also warned that the auction design “seeks to maximise the possibility of squeezing out irrational bids from developers who are desperate for coal to run their stranded projects”. The HLEC had recommended that “that for incremental coal production, the generator should be required to bid only once, for the procurement of PPA and the linkage may be granted at the notified price without any further bidding”.

Following the HLEC suggestions, the Union power ministry had formulated a methodology for conducting coal auctions for power plants without PPAs, which allowed such generating stations to apply for coal linkages, provided electricity produced from this coal is sold through spot power exchanges or through the government’s ‘DEEP’ portal, where bidding is conducted for bilateral short-term supply. However, sources said that the latest CIL auction has no provision for plants which want to sell power in the spot markets.

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