Purchase agreements dry up, give power plants a tough time

The power plants that started operations since April last year with a total capacity of 13,900 MW are facing financial uncertainties due to insufficient electricity purchase agreements and transmission constraints, says India Ratings and Research (Ind-Ra).
"The power plants commissioned since April 2014 with a capacity of 13,900 MW face financial uncertainties due to lack of sufficient off-take agreements and transmission constraints," Ind-Ra said in a release.
Ind-Ra estimates that annual capacity charge losses could be as high as Rs 51 billion or Rs 5,100 crore (excluding return on equity, RoE) for these plants.
Capacity charges could be partially recovered if power is produced by these plants and sold at power exchanges or through merchants, it said.

Low prices of imported coal may allow these plants to be reasonably competitive at the generation cost (excluding RoE) of about Rs 3.6 per unit if they are located near the coast.
However, stranded generation from these plants for a year may be as high as 37 billion units (BU) compared with the total traded short-term volume of about 99 BU in FY15.

India's total coal-based power plant capacity was 1,67,207 MW at June-end 2015, and 8.3 per cent (13,900 MW) of the total capacity was added in April 2014-June 2015.
The capacity of 40 per cent of newly commissioned plants is under strain and 37 BU of generation may be foregone annually unless sold through short-term markets.

While 70 per cent of the power is tied up through long-term or medium-term off-take agreements, about 1,300 MW of tied-up power faces transmission constraints.
The weighted average price of electricity transacted through power exchanges is Rs 2.5 per unit and Rs 2.35 per unit in Power Exchange India Limited and Indian Energy Exchange, respectively (CERC, May 2015). Any further continuation of the subdued short-term rates could exacerbate these losses.
Ailing finances, expectations of a high bid price (based on case one bidding pattern) and prevailing short-term tariffs preclude many state utilities from cobbling up long-term contracts.
With over 5,500 MW of capacity lined up for commissioning in FY16, there is increased uncertainty in timely servicing of debt for these projects in the absence of a strong off-take agreement or evacuation capacity.

The power demand and supply situation is constrained by lack of adequate inter-regional transmission capacity.
Consequently, surplus power from eastern and western regions is unable to cater to the demand of northern and southern parts.