Private power producers with combined capacity of 10 GW that have got coal blocks under the recent auction will incur under-recovery of 65 paise per unit, translating into R1,350 crore in 2015-16, according to a Crisil Research study released on Thursday, reports fe Bureau in New Delhi. When production from these blocks peaks, the under-recovery in variable cost will be an annual R4,500 crore. The estimates assume the companies will be able to enter into power purchase agreements (PPAs) for 85% of the capacity.
Of 32 blocks, 12 were reserved for and taken up by power firms. The bidding was generally aggressive, resulting in reverse bidding (on fuel pass-through) turning into forward bidding, providing states additional revenue over and above what the initial reserve price would have.
“Increasing fixed tariff to compensate under-recovery will be difficult as competition is likely to be intense given large untied capacity (25 GW by 2016-17) with the recent PPAs,” Crisil added.
Prasad Koparkar, senior director, Crisil Research, said: “The aggressive bids indicate the big premium on fuel security. Bid winners have agreed to forgo, on average, mining costs of nearly Rs 650 per tonne and pay an additional premium of about Rs 400 per tonne to states in 2015-16. To offset the resultant 65 paise per unit under-recovery in the variable tariff, recently commissioned or under-construction projects will require an average first-year fixed tariff of close to Rs 3.50 per unit. That’s approximately 30% more than average fixed tariff quoted in the PPAs signed during the last two years. This will be challenging.”