India Ratings maintains negative outlook for thermal power sector

By: | Published: September 21, 2018 1:39 AM

Coal supply issues arising from inadequate railway rakes to ferry the fuel and low visibility of new power purchase agreements (PPAs) still pose formidable challenges to the thermal power sector, analyst at India Ratings said.

India Ratings maintains negative outlook for thermal power sector.

Coal supply issues arising from inadequate railway rakes to ferry the fuel and low visibility of new power purchase agreements (PPAs) still pose formidable challenges to the thermal power sector, analyst at India Ratings said. Power plants situated far from the coal mines are facing supply issues, which increases the risk of foregoing the assured ‘fixed tariffs’.

Though Coal India (CIL) has increased its dispatch to consumers by 9.5% to 247 mt in the first five months in FY19, 14 power plants had coal stock to run them for less than four days on September 18. Power generators with existing PPAs have to declare a certain levels of plant availability (which warrants adequate coal stock) to claim the fixed cost from electricity distribution companies (discoms).

A scheme to promote purchases from plants sans PPAs was launched by the Centre earlier this year to provide assured electricity offtake for 2,500 MW of such assets. Neither the discoms nor the power producers have shown much enthusiasm to the scheme even as nearly 20,000 MW of commissioned units are currently stressed due to lack of PPAs. Only seven power plants with combined capacity of 1,900 MW agreed to sell electricity in this mode at the lowest bid price of Rs 4.24/unit. The average cost at which states buy non-renewable power is Rs 3.53/unit. States are also increasingly sourcing power from short-term markets and only 1.4 GW long-term PPAs have been signed in the last four years.

The agency believes that apart from falling wind and hydro generation due to seasonal factors, partial generation availability of about 40 GW of stressed thermal power assets in the middle of resolution process have also contributed to the recent surge in spot power prices. “Non-availability of working capital limits for the stressed thermal power assets is leading to muted generation,” it noted. India Ratings cautioned that competition in short-term market is likely to intensify if there are delays in coal supply issues and if PPAs remain elusive, which could lead to unviable tariff realisation.

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