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Cover Story | June 2017

Things will improve only when PPA bidding opportunities come up

Shailesh S Joshi, Executive Director & Head Energy Consulting Services, Feedback Infra Pvt. Ltd

With the government pushing for nuclear, solar and wind capacities, is there any possibility that the stranded thermal capacity getting reprieve in the near future?
While the government has announced measures on coal side and RBI is trying to give more elbow room to banks and institutions which have lend money to these projects, real improvement will come up only when PPA bidding opportunities come up.

Do you think UDAY will be able to spur more demand for power from distribution companies (discoms) in a couple of years as the government is hoping for and result in signing PPAs?
UDAY is more to do with financial and operational efficiency improvement aspects of state utilities. It might help utilities to pay for the power consumed in better way. But UDAY may not help in demand pick up.

Due to availability of power on exchanges at a very low rate, there is no compulsion for discoms to enter into long term PPAs. How such low market prices are affecting the power sector as a whole, and generators in particular?
Demand projections based on which the last few rounds of Case-1/Case-2 biddings took place have proved to be very aggressive with the actual demand being much lower than projections. Therefore, the power tied-up under such Case-1/Case-2 route is expected to suffice for the next 3-4 years. In the meantime, old projects the PPAs of which have expired, and new projects where there are no PPAs are selling power through power exchanges. Therefore, low prices in exchanges are actually an 'effect' and not a 'cause'. Demand has to pick up for this anomaly to get rectified.

What are the initiatives the government is taking to alter the situation for the better? The government is trying to ease coal and lender related problems.

New coal linage policy, forward auction of coal and various RBI guidelines to lenders are some examples.

What are the other concrete remedies that may be required for bringing the surplus capacity into supply stream in full?
Early retirement of old power stations ( >25 years old) and shutting down expensive state-owned power plants and using stranded plants to deliver power more economically.

What is the stranded capacity that is suffering evacuation problems and what are the generation segments that are affected the most?
Total 50,000 MW is stranded today - 25,000 to 35,000 MW in Coal and about 15,000 MW in Gas. It is difficult to exactly identify capacities which are stranded only because of evacuation problems, since it is usually one of the pain points apart from 'no PPA (Power Purchase Agreement), no coal linkage, land acquisition and freeze on disbursement by the lenders'.

What are the broad reasons we can cite for the rise in stranded capacity and how they affect the financial viability of the projects?
Lack of demand resulting in lack of PPA bidding opportunities, slower than anticipated project execution (due to delays in land acquisition) and in some cases, lack of assured coal supplies are the main reasons. The project cost on account of delay on project execution increases beyond the appraised numbers. Lenders are unable to fund this project cost overrun and the promoters are also unable to bring in this additional equity. This affects the project viability. Lack of PPA bids means that the project is forced to sell power into power exchanges.

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