Timeline of tariff relief for power projects unclear: Icra

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New Delhi | Updated: January 9, 2017 10:39:43 PM

Lower dependence on imported coal and tariff relief for affected projects is positive for the power sector but timeline for implementation of tariff relief is still unclear, domestic ratings agency Icra said.

The improvement in domestic coal availability, led by Coal India Limited, has lowered the coal import dependence for the sector during FY16 and in the current fiscal. (Reuters)The improvement in domestic coal availability, led by Coal India Limited, has lowered the coal import dependence for the sector during FY16 and in the current fiscal. (Reuters)

Lower dependence on imported coal and tariff relief for affected projects is positive for the power sector but timeline for implementation of tariff relief is still unclear, domestic ratings agency Icra said.

“Icra positively takes note of the order issued by the CERC approving tariff relief under force majeure for the imported coal-based power projects of Adani Power Ltd (APL) and Coastal Gujarat Power Ltd (CGPL), affected by the change in regulations in Indonesia,” Icra said.

However, it said that the implementation of this order is subject to approval by the Supreme Court and thus, timelines of its implementation are not clear.

Further, the tariff relief, as per this order, is estimated to be lower than actual fuel cost under-recoveries, as per Icra estimates.

It further pointed out that while energy demand growth has been moderate at 3-5 per cent since FY14, it is likely to recover gradually over the next 2-3 year period with expected improvement in the financial position of the state-owned distribution utilities (discoms) following the implementation of the Ujwal Discom Assurance Yojana (UDAY) and in turn, leading to an improved off-take and reduction in load shedding.

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“However, any significant pick-up in average thermal PLF (plant load factor) level from the current level of 59.5 per cent (8M FY2017) is unlikely in the medium term in Icra’s view, with the increasing share of renewable energy in the overall energy consumption on an all India level and sizeable thermal capacity addition already in place.

“In this context, the recovery in industrial demand coupled with extent of improvement in the financial health of discoms remains key drivers for energy demand,” Senior Vice President, Icra Ratings, Sabyasachi Majumdar said in a statement.

The improvement in domestic coal availability, led by Coal India Limited, has lowered the coal import dependence for the sector during FY16 and in the current fiscal.

However, weak electricity demand growth has led to a build-up of coal inventory at CIL’s pitheads as well as at the power plants and in turn, led to a slowdown in production growth during the current fiscal.

“Despite the improved coal availability, the policy for auction of coal linkages is still pending, which is a credit concern, especially for operational thermal projects/IPPs (estimated 6.8 GW) which have long-term PPAs, but are still awaiting the tie-up of long-term fuel supply agreement (FSA),” Majumdar said.

The recent sharp increase in coal price internationally with the price of eco-grade coal increasing by 73 per cent between April and December 2016 is a negative for thermal power capacity with short-term PPAs and dependent upon imported coal, especially given the subdued tariff levels in short term power trading.

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