Plants bought captive mines in auctions but are unable to sell power. Here’s why

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New Delhi | Updated: May 3, 2016 7:30:38 AM

More than a year after captive coal mines were auctioned by the government to power companies, the firms have been starved of opportunities to sell their power to state-owned power distribution companies.

More than a year after captive coal mines were auctioned by the government to power companies, the firms have been starved of opportunities to sell their power to state-owned power distribution companies.More than a year after captive coal mines were auctioned by the government to power companies, the firms have been starved of opportunities to sell their power to state-owned power distribution companies.

More than a year after captive coal mines were auctioned by the government to power companies, the firms have been starved of opportunities to sell their power to state-owned power distribution companies. This is because the tenders for the power purchase agreements (PPAs) floated by the states since June last year have been only for linkage-based plants without any capacity reserved for captive coal mine-based plants.

Industry sources told FE most states want to avoid the complexity involved in procuring power from developers that won mines last year. The Centre had mandated that state regulators, before the bidding starts, cap the fixed-cost component of power plants with captive mines. This was to ensure these companies are unable to load the fixed-cost component of the tariff in a bid to offset high cost of coal. State-owned power distribution companies have found the process to be potentially controversial.

Since last year, major long-term as well as medium-term PPA tenders were floated by states like Andhra Pradesh, Telangana, Bihar, Kerala, Karnataka and Delhi for a combined capacity of 5,000 MW. However, all these states allowed only linkage-based power plants to bid and barred firms with captive mines. This has not only affected the viability of such projects but has also robbed mine-bearing states from receiving revenues as coal mining has remained either suspended or subdued due to absence of electricity procurers.

Private firms looking for buyers include GMR Energy, Jaiprakash Power Ventures and Essar Power,

among others, with a combined capacity of nearly 4,000 MW. These companies had managed to secure schedule II (operational) mines in the auctions. However, some of these mines that had been operational under the previous ownership are yet to start production, primarily due to lack of electricity buyers. Apart from these firms, several other power developers had won schedule III mines — soon to be operational — but have found no takers after more than a year since coal block allocations.

Uttar Pradesh, however, became the first state to invite captive mine-based developer to participate in bidding last year. The bidding is yet to close but the state-owned power company (UPPCL) has only earmarked 500 MW for plants with mines even as linkage-based plants have much wider opportunity to bag a deal with 2,800 MW set aside for them. The state electricity regulator has also capped the fixed cost that these plants can claim to Rs 2.81 per unit, revised downwards from Rs 2.88 per unit suggested by UPPCL.

“We arrived at the number after averaging the fixed cost of all the state-run generation units and independent power producers’ stations in the state to arrive at this number,” Desh Deepak Verma, chairman, UPERC, told FE. He added that the commission thought the fixed cost ceiling was fair to all participants.

However, analysts that FE spoke to said that the cap could be discriminatory towards some plants located away from the fuel source. A cap of Rs 3.50 per unit would have been ideal for these plants but a lower cap could pose challenges for developers in squeezing reasonable return on investment, the analyst said. GMR Chhattisgarh, JP Power and Essar Power have qualified for the financial round of the bids.

“We have no choice but to participate in these bids as states have so far avoided the captive mine-based developers. With UP setting the bar for fixed cost, we hope more states would take the lead as we could produce some of the cheapest electricity in the country,” a top executive of a power developer with a captive coal mine told FE.

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