Power Today |
 
Advertise Here [728 W x 90 H pixels]
Feature | May 2015

Coal auctions:SEBs the gainer!

Aggressive bidding seen in the first two rounds of coal mine auctions to result into a significant under-recovery in fuel cost for the winning bidders. Meanwhile, the slow progress seen in tie-up of power purchase agreements (PPAs) for power procurement on long term/medium term basis by the state owned distribution utilities in the last two year period remains a key concern for the IPPs which are yet to tie-up their capacity.

Subsequent to the de-allocation of 204 coal blocks by the Supreme Court (SC) of India in September 2014, the Government of India (GoI) notified ´The Coal Mines (Special Provisions) Ordinance, 2014´ on October 21, 2014, in order to provide guidelines for reallocation of aforesaid coal mines and thereafter, has concluded the first phase of e-auction of 33 coal blocks (out of which 12 blocks earmarked for power sector and balance for end use in non-regulated sectors) between February 14, 2015 till March 13, 2015. Out of these 12 blocks put up for e-auction in the first two rounds, successful bidders have been announced for 9 mines.

These 9 coal blocks allocated to power sector have geological reserves of 1,200 MT (out of which extractable reserves are assumed at 60 per cent) and estimated to provide a fuel security for about 6 GW of generation capacity in the power sector, in ICRA´s view.According to ICRA´s note, power generating companies in the auction have been quite aggressive, with the bidding happening on a forward basis on the reserve price payable as bid quoted is zero in reverse bidding. Thus, bids quoted by the successful bidders range from Rs 302 per MT to Rs 1,110 per MT, which are ´negative price bids´ for the bidders which essentially means that a winning bidder would have a zero fuel charge recovery in PPA and in addition would bear the cost of both coal mining and quoted reserve price payable to state government. As a result, winning bidders remain exposed to a significant under-recovery in fuel cost which is estimated to range from Rs 0.39/kWh to Rs 1.02/kWh on a levelised basis over a 25-year period.

Aggregate under-recovery for the bidders is estimated at Rs 8 billion in FY 2015-16, which is likely to increase to about Rs 18 billion by FY 2017-18; further, the quantum of under-recovery in fuel cost would remain sensitive to both the stripping ratio of the coal mine and cost of mining related to over-burden removal during the operating phase.

According to experts in this segment, the SC ruling which cancelled allotment of coal blocks impacted capacity in private IPP segment to the tune of 18 GW and the current coal auctions have secured fuel for 2.5 GW out of those. Thus, capacity of about 15.5 GW (with cumulative project cost at around Rs 930 billion) continues to remain affected and within the same, about 8 GW is at additional risk due to absence of tapering coal linkage.

Meanwhile, when POWER TODAY spoke to the winning bidders on the issue of fuel recovery (refer table: Winning bidders and quoted bid price), some of them suggested that they may look at options to bridge the under-recoveries in fuel cost using the additional gains generated from sale of 15 per cent of the generation capacity in the merchant/short term trading market as well as possibility of quoting higher fixed capacity charge in the upcoming competitively bid PPAs for the capacity which is yet to be tied-up. However, a senior official from CESC Ltd stated, ´The slow progress seen in tie-up of PPAs for power procurement on long term/medium term basis by the state owned distribution utilities in the last two year period remains a key concern for IPPs which are yet to tie-up their capacity.´

Also, according to Sabyasachi Majumdar from ICRA, ´There could be possibility of delays in the finalization of competitive bidding guidelines which are currently under review. Further, ability of the bidder (who is yet to tie-up capacity) to quote a higher fixed capacity charge so as to recover the under-recovery in fuel cost in a competitive bidding process remains to be seen.´However, according to a senior official from Maharashtra State Electricity Distribution Company Ltd, who wishes not to be quoted, the absence of fuel charge recovery in PPAs, remains favorable for none other than state owned distribution utilities, as the same is expected to result into a reduction in the energy charge component of power procurement costs and consequently, a tariff relief for the consumers. According to the official from MSEDCL, it is expected that the government of Maharashtra may instruct the Maharashtra State Regulatory Commission to reduce the tariff, soon.

State distribution utilities to benefit
As stated earlier, in view of the negative price bids in the reverse auction process, the winning bidders cannot charge any coal cost for supply to state distribution utilities from their power generation projects. This is a positive development for the off takers i.e. state owned distribution utilities, as the absence of fuel charge recovery is expected to result into a reduction in power procurement costs. The production from the coal mines awarded through the e-auction process is estimated at 12.6 million MT and 19.68 million MT in FY2016 and FY2017, respectively (Refer table: Estimated relief in retail tariffs), given that 5 of the 9 mines awarded under auction are already operational and the remaining 4 mines are expected to be become operational by FY2017.

The production from these mines is estimated to result in net power generation of 20,753 MUs and 32,178 MUs in FY2016 and FY2017, respectively. As per the methodology approved by the Ministry of Coal, GoI, 85 per cent of the generated from the power generation projects of the winning bidders must be sold through long term PPAs to state distribution utilities, with energy charges arrived at as per the quoted bid price. The winning bidders have signed PPAs for about 60 per cent of the power generation capacity linked to the coal mines with distribution utilities, primarily in the states of Madhya Pradesh, Chhattisgarh, West Bengal and Odisha.

Given the negative price bids, the distribution utilities in these states are expected to achieve savings to the tune of Rs 4.17 billion and Rs 6.46 billion in FY2016 and FY2017, respectively, while procuring power from these winning bidders, which otherwise would have been spent on fuel charges payable to these power generating companies (arrived based on the notified coal price by CIL). Says a senior official from Madhya Pradesh DISCOM, ´The savings in fuel costs are estimated to result in tariff relief of about 0.9 per cent for consumers in these four states put together in FY2017.´

Impact of the aggressive coal auction bids
Now let´s have a look at projects with cost plus based PPAs. Among the winning bidders in the coal mine auctions, CESC Ltd and Durgapur Projects Ltd have regulated PPAs (cost plus basis) for the entire capacity wherein tariff is determined as per the tariff regulations approved by the respective state electricity regulatory commissions (SERCs). As per the methodology approved by the MoC, GoI, the quoted bid price in the reverse auction process together with applicable taxes and other allowable expenses like transportation cost, forms the basis for determination of energy charges by the appropriate SERCs in case of cost plus PPAs. An illustration is highlighted for a 1,000 MW (see table: key assumption) project having cost-plus based PPA to show the impact of negative price bid under various scenarios of reserve price quoted in forward bidding, bilateral traded tariff and plant load factor (PLF) level.

Post your comment
Name:  
Email:    
Comments:  
Verification Code:   Change Image

 

Posted Comment
1 .     Yogesh Says:
17 Oct 2016
I wish to start pvc / pp electric wire unit in Delhi. What kind of information I can get if I subscribe for your magazine

2 .     Sarfaraj Bilakhiya Says:
20 Sep 2016
Pls invite me all auction in gujarat

3 .     k.natarajan Says:
20 Jun 2016
we are doing business developing for solar power ,thermal power , customer supporting and we have 45 mw splar power on hand needs investors..... thanks lot pls call +910842559230 +919842753550


Advertise Here [728 W x 90 H pixels]