RIL plans entry into coal-based power generation with bid for Lanco's plant

Company makes a foray into coal-based power generation for the first time

In a deviation from its green energy policy, Reliance Industries is planning to foray into coal-based power generation by submitting an application to acquire bankrupt Lanco’s Amarkantak unit.

RIL had earlier made an announcement to enter the renewable power generation business by investing $10 billion in three years, but its bid for a coal-based power plant is considered as a deviation from its green energy policy. In the last one year, RIL has acquired several green energy companies, including a 40 per cent stake in Sterling and Wilson Solar and REC Solar for Rs 5,782 crore.

Experts said though bidding for a coal-based power plant is inconsistent with RIL’s stated objective of investing in renewable energy supply chain, the potential investment is more about investing where the risk-return equation makes sense. “India needs to operate its existing coal power fleet for several decades to come — and energy security has become a globally important theme that needs to be clearly recognised and factored in.

India needs to work towards energy independence as a top priority alongside decarbonisation and expanding energy supply,” said Tim Buckley, director, Climate Energy Finance in Sydney.

“So, if there is an existing asset in financial distress, and that can be acquired with an existing longer-term power purchase agreement (PPA) supported by a credible coal supply agreement, all at favourable prices, then the risk can be clearly evaluated,” Buckley said.

RIL did not comment on the Lanco Amarkantak bid.

Experts said it might well be that RIL is thinking more strategically —by buying a large relatively new coal fired power plant, it can work this into the accelerated decarbonisation strategy —termed the Energy Transition Mechanism —being evaluated by the World Bank and the Asian Development Bank. “This could involve completing Lanco Amarkantak’s unitsthree and four, and cancelling the proposed but not yet started units five and six, and repurposing the surplus land already allocated,” Buckley said.

“I would suggest that the bid is opportunistic, and domestic energy security-aligned. Buying an existing coal power plant which is operating at one-third (capacity) and rest half-built, is inconsistent with divestment, but it does not add to existing emissions, it just puts the plant in another’s hands, who has the financial capacity to minimise the capital loss involved in this disastrous project. How RIL works with that asset down the track will determine if this can be aligned with a net zero emissions pledge. It still could be, but it could be a simple case of RIL taking advantage of Lanco’s ongoing financial distress, realising some of the debtors’ loan losses and resolving the financial issues,” he said.

With a power generation capacity of 1,920 mw at Korba in Chhattisgarh, Lanco Amarkantak Power was sent for debt resolution under the insolvency and bankruptcy code (IBC) 2016 by the banks in 2019. Apart from RIL, Adani Power and Jindal Power are among the 11 companies who have submitted their expression of interest for the company. The last date to submit financial bids is April 25.

The promoter entities of Reliance Industries already own and operate a coal-based power plant in Jamnagar, which supplies electricity to RIL’s refinery.