Coal Ministry's new Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) has started showing results as a study conducted by global analytics company CRISIL said that coal linkage under the scheme has lifted utilisation and slashed fuel cost for power plants. However, the report mentioned that truant Power Purchase Agreements (PPAs) have the potential to weaken the show of the scheme.
The report added that one out of the five stressed assets that have coal linkage under the scheme is already out of stress and improvement in operational performance of other plants is expected to unlock better value for stakeholders and expedite the resolution process.
Ten power plants had won coal linkages totalling 27.18 mtpa for 25 years in the first round of auctions under SHAKTI, with discounts of 1-4 paisa/kWh on existing tariffs. Between April and August this year, fuel cost of these plants dropped ~37% as linkage supply rose ~49% on-year, while e-auction and import procurements fell ~70% and ~84% on-year, respectively.
The average generation cost for all the plants under SHAKTI declined ~38% to Rs 1.87 per kWh, compared with Rs 3.03 per kWh in April-August 2017. For distribution companies, this means savings in power-purchase costs - the benefit would be higher for cost-plus power-purchase agreements, the CRISIL report said.
It added that of the five stressed assets which have coal linkage under SHAKTI, one (Adani Tiroda) is out of stress already and improvement in operational performance of other plants is expected to unlock better value for stakeholders and expedite the resolution process. It further said that faster implementation of SHAKTI-II is expected to partially assist the resolution of an estimated 2.6 GW of untied stressed-power capacity.
The coal ministry in May 2017 had introduced SHAKTI to ensure coal linkage to power producers based on an auction or tariff-based bidding. The first round of auction under SHAKTI for Independent Power Producers (IPPs) having valid Power Purchase Agreement (PPAs) with discoms, either directly or through trading licensees, had received 31 applications initially.
These applications were then scrutinised by the Central Electricity Authority, which found only 14 to be eligible to participate in the bidding process. Finally, 10 bidders - with cumulative installed generation capacity of ~9,044 MW - participated in the auction conducted by Coal India in September 2017 as per a pre-approved methodology. Bidders quoting the highest discount to its existing tariffs could choose their preferred source of coal supply from eight available sources. In this way, 10 power plants, with discounts of 1-4 paisa per unit on the existing tariffs, won ~27.18 mtpa of coal linkage for 25 years.
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Among the major players, Adani Power Maharashtra Ltd (which owns and operates 3,300 MW of coal-based power plants at Tiroda, Maharashtra) won 5.85 mtpa and Adani Power Rajasthan Ltd (which owns and operates 1,320 MW of coal-based power plant at Kawai, Rajasthan) won 4.85 mtpa by offering discounts on existing tariffs of 1.9 paisa per unit and 2.4 paisa per unit, respectively. KSK Mahanadi Power Company Ltd's Akaltara thermal power plant offered average discount of 3.1 paisa per unit to secure 6.82 mtpa of linkage supply over the next five years, and Bajaj Hindustan's Lalitpur thermal power project got 5.64 mtpa of linkage supply at a tariff discount of 3.6 paisa per unit.
In December 2017, Coal India issued letters of intent (LoI) to players that won coal linkages. These LoIs were to be converted into definitive fuel supply agreements (FSAs), provided power plant owners amended their earlier PPAs with revised tariffs after the discounts offered while bidding.
The players were given 90 days to get their PPAs amended and approved from respective regulatory commissions to be eligible for converting their LoIs into FSAs. All, barring a few whose final orders are yet to come, got their PPAs amended and signed FSAs with Coal India.
Following this, Coal India commenced linkage coal supply under the newly signed FSAs in April, providing much-needed succour to the power plants, the report said.
It added that power generation by several of the plants with linkage coal supply has improved significantly between April and August - that of GVK Power's Goindwal Sahib thermal power plant by ~106%, KSK Mahanadi's Akaltara power plant by ~21%, and GMR Energy's Kamalanga power plant by ~20% - compared with the corresponding period a year ago. Among others, Adani Power Tiroda also reported robust generation numbers.
Before SHAKTI, power plants were dependent on either e-auction coal at exorbitant premiums above notified prices or imported coal from Indonesia, whose prices have shot up in recent months due to rising demand and constrained supply across the globe. However, after implementation of the scheme and commencement of supply under newly signed FSAs, power plants have drastically reduced their dependence on costlier sources of coal, leading to savings in fuel costs.
The winning power plants saved an estimated ~Rs 2,458 crores between April and August, a whopping 37% lower on-year, as linkage supply rose ~49% on-year. At the other end, e-auction and import procurements declined ~70% and ~84% on-year, respectively for these plants, the report said.
It added that some of the power plants, identified as stressed assets, are performing better post-SHAKTI, with turnaround in sight.
"Reduction in generation cost is estimated to be one of the most crucial benefits of SHAKTI for power producers - more so for power plants identified as stressed assets, which have weak financials and troubled operational performance mainly due to lack of firm fuel supply arrangements and high generation costs. The importance of assured coal delivery at competitive prices to long-term viability of these power projects cannot be overstated," said.
"For instance, Adani Power's Tiroda plant, which has long-term PPA with Maharashtra discom, was earlier identified as a stressed power plant due to lack of firm fuel supply and high cost of alternative fuel arrangement without sufficient pass-through. However, after getting linkage supply under the first round of SHAKTI, the plant has improved its operational performance. Other plants in the stressed assets category - GMR Kamalanga, GVK Goindwal Sahib and KSK Mahanadi - have also seen improvement in operating performance. With SHAKTI addressing some of the key issues, these plants are expected to revive on their own, or at least fetch good value for lenders, if liquidated. However, issues of merit order dispatch and logistics costs will continue to remain though fuel and PPA related issues are not there," the report said.
It further stated that between April-August, 2018, state discoms having PPAs with plants that secured linkage supply under SHAKTI were able to cumulatively save estimated ~Rs 56.9 crore due to a downward revision in PPA tariffs by these power plants. This translates to annualised savings of Rs 136 crores per year on their power purchase costs, indicating at least one target set under both Ujjwal Discom Assurance Yojana (UDAY) and SHAKTI - that of a reduction in the power cost for discoms and for end-consumers - is being taken care of.
The report said that so far, the scheme has been positively impacting both generators and consumers. However, sustainability of the benefits and long-term success of the exercise depend on availability of domestic coal and its equitable distribution across power plants. It further said that SHAKTI-II can help relieve some stress, but lack of PPA remains a concern.