Indian purchase agreements tough on power plants

• 8 years ago (2015-08-04)
• David Flin

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India Ratings and Research, a private credit ratings agency, has said that power plants that have started operations since April 2014 with a total capacity of 13,900 MW are facing financial uncertainties due to a lack of sufficient off-take agreements as part of the purchase agreements, and due to transmission constraints.

India Ratings estimates that annual capacity charge losses could be as high as $1 billion, excluding return on equity, for these plants. Capacity charges could be partially recovered if power is produced by these plants and sold at power exchanges or through merchants.

Low prices of imported coal may allow these plants to be reasonably competitive at the generation cost, excluding return of equity, of about $0.056 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 compared to the total traded short-term volume of about 99 billion units in 2014-15.

India’s total coal-based power plant capacity was 167.2 GW at the end of June 2015, and 8.3 per cent (13,900 MW) of the total capacity was added since April 2014. The capacity of 40 per cent of newly commissioned plants is under strain. 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 power demand and supply situation is constrained by lack of adequate inter-regional transmission capacity. As a result, surplus power from eastern and western India is unable to support the demand of northern and southern states.