Generation Round-up: Low PLFs and rising stressed assets cast a shadow on segment

Low PLFs and rising stressed assets cast a shadow on segment

Capacity addition by renewable energy sources continues to outpace that by conventional sources. In 2017-18, about 11,788 MW of renewable energy capacity was added while capacity addition by conventional sources including thermal and hydro stood at only 9,505 MW. While the renewable energy segment has been receiving inc-

reased policy support from the government to meet the ambitious 2022 target, conventional energy is reeling under the issues of lack of power procurement bids, declining plant load factors (PLFs), increasing capital costs and rising stressed assets.

Indian Infrastructure presents a roundup of key developments in the generation space over the past year…

Installed capacity

The country’s total installed capacity across all sources (including renewables) stood at 344 GW as of March 2018. A major proportion (58 per cent) of the installed capacity is accounted for by coal-based power plants, followed by renewables with a share of 19 per cent. Hydro follows next with a share of over 13 per cent and the balance is accounted for by gas, diesel and nuclear power plants.

During 2017-18, about 8710 MW of thermal power capacity and 795 MW of hydro capacity was added. The total capacity addition from conventional sources (including nuclear) in 2016-17 was over 14.2 GW.

Capacity addition in the renewables segment was dominated by solar while wind power faced headwinds as discoms refused to honour PPAs in the wake of low tariffs discovered under competitive bidding. During 2017-18, over 9,362 MW of solar power was added while wind power capacity addition stood at just 1,766 MW. This is in contrast to wind-based capacity addition of 5.5 GW in 2016-17.

In terms of energy generation, total generation from conventional energy sources (including import from Bhutan) stood at 1,201.5 BUs during 2017-18, over 4 per cent higher than the generation during the same period in the previous fiscal year. Meanwhile, generation from renewable energy sources stood at 93,208 MUs during the April-February 2018 period, about 23.2 per cent higher than the 75,606 MUs generated during the same period in 2016-17.

Recent developments

Several key developments took place in the generation segment over the past year, focusing on easing coal supplies to gencos and driving the uptake of power.

In April 2018, the Ministry of Power (MoP) notified the guidelines for flexibility in generation and scheduling of thermal power stations to reduce emissions. The flexibility will provide generators an opportunity to optimally utilise generation from renewable energy sources.

In February 2018, the Cabinet Committee on Economic Affairs approved the methodology for the auction of coal mines for commercial mining. The move is expected to increase the number of coal suppliers in the market to boost domestic production and make pricing transparent and market-driven, which will benefit generators in the long run.

In January 2018, Coal India Limited (CIL) increased coal prices by almost 22 per cent. Earlier, in December 2017, CIL had announced the imposition of coal evacuation surcharges. Further, CIL announced the implementation of a coal pricing mechanism based on the gross calorific value (GCV) of each coal consignment. The methodology will replace the mid-GCV-based pricing mechanism across coal grades and help resolve the long-standing differences over coal quality and grade slippage between CIL and power plant developers.

In December 2017, the MoP issued draft standard bidding documents (SBDs) and guidelines for ultra mega power plants (UMPPs) based on allocated coal linkages, in a bid to revive the UMPP programme. A key feature of the draft guidelines is reverting to the old build-own-operate model of project development. In addition, provisions have also been added regarding alternative coal supply arrangements in case of a shortage.

In November 2017, the Central Electricity Authority (CEA) notified a new methodology for monitoring coal stock at thermal power plants (TPPs). It takes into account the flexibilisation scheme for TPPs notified by the MoP in May 2016.

Further, the first round of coal linkage auctions kicked off under the Scheme for Harnessing and Allocating Koyla Transparently in India (SHAKTI) in September 2017 wherein coal linkages aggregating 27.18 million tonnes per annum were secured by 10 developers. The companies that will receive coal supplies include Adani Power Limited, GMR Energy Limited and KSK Energy Ventures Limited. Subsequently, in November 2017, CIL invited expressions of interest from gencos that did not have power purchase agreements (PPAs) to initiate proceedings for the second round of auctions under SHAKTI.

In October 2017, Gujarat became the first state to implement the flexible coal utilisation initiative of the MoP launched in May 2016. Gujarat Urja Vikas Nigam Limited (GUVNL) awarded a contract to GMR Chhattisgarh Energy Limited for procuring 500 MW of power at Rs 2.81 per unit. Under the scheme, the coal allocated to Gujarat State Electricity Corporation Limited, a subsidiary of GUVNL, will be made available to GMR to generate and supply power at the stipulated tariff.

In addition, the nuclear power segment received a major fillip after the cabinet approved the construction of 10 indigenous pressurised heavy water reactors of capacity 700 MW each in May 2017. This will result in significant nuclear capacity addition in the country.

Further, in order to arrest the trend of declining hydropower capacity additions, the MoP is working on a policy to revive the sector, though the details have not yet been finalised. The proposed policy will bring large hydropower projects (over 25 MW) under the ambit of renewable energy to ensure similar policy attention and benefits to the segment.

Also, the issue of safe operations of TPPs came to the forefront after a blast in the boiler section of one of the units of NTPC’s Feroze Gandhi Unchahar TPP in Uttar Pradesh claimed many lives and injured several others in one of the worst industrial disasters in India, on November 1, 2017.

Challenges

The number of stressed assets is growing in the thermal power sector. The Department of Financial Services had identified 34 stressed coal-based power projects with an estimated debt of Rs 1.77 trillion which have been reviewed by the government. The issues faced by the projects include a lack of funds, PPAs and fuel security.

Though several initiatives have been announced (or are under way) by the central government to deal with the issue, a concrete resolution plan has not yet been finalised. A panel headed by Amitabh Kant, chief executive officer, NITI Aayog, has been set up to advise on the issue. The panel comprises secretaries from the MoP, the Ministry of Coal and the Department of Financial Services.

In April 2018, the MoP announced a pilot scheme to procure electricity from stranded projects without PPAs. Under the initiative, PTC India Limited will procure 2,500 MW of power from the projects for a period of three years and sign back-to-back sale agreements with discoms for the same. The company which submits the lowest bid in the auction will be allocated a maximum capacity of 600 MW. Further, if PTC procures less than 55 per cent of the contracted capacity in a month, the power plant will be paid compensation linked to spot power prices at the Indian Energy Exchange.

In December 2017, NTPC Limited floated a tender to acquire stressed thermal assets across the country. The company received proposals from 13 entities seeking the sale of stressed assets. In addition, discussions are under way between NTPC, the Power Finance Corporation and the Rural Electrification Corporation to form a special purpose vehicle to operate stressed assets.

The Reserve Bank of India’s new guidelines, the Resolution of Stressed Assets – Revised Framework, which mandate banks to classify even a day’s delay in debt servicing as a default, are adding to the sector’s stress. In a recent meeting with the power minister, independent power producers were assured that necessary action would be taken in consultation with the concerned department to address the issue.

Declining PLFs owing to low demand and backing down of generation units by discoms is also a key concern for gencos. The PLFs of coal-based power plants hovered at 59-60 per cent in 2016-17 and 2017-18, down from 73 per cent in 2011-12.

The outlook for gas-based capacity is also poor. In 2017-18, gas-based power plants had PLFs of about 22.8 per cent owing to lack of domestic gas. Further, the central government reportedly does not intend to reintroduce the e-auction scheme for supplying regasified liquefied natural gas at subsidised prices to stranded power projects. The sector will also not receive any priority in terms of fresh allocations from gas fields.

Outlook

The generation mix in the power sector is evolving continuously with the growth in renewables and a slowdown in conventional power capacity addition, especially coal based. As per the National Electricity Plan – Generation released recently by the CEA, the energy requirement is expected to increase to 1,566 BUs by 2021-22 and further to 2,047 BUs by 2026-27. Accordingly, coal-based capacity addition of about 6,447 MW will be required besides the 47,855 MW of projects which are currently under implementation. This is a change from the CEA’s earlier stand that no additional coal-based capacity will be required during the period. Further, the committed capacity addition from renewables, hydro, nuclear and gas is 117,756 MW, 6,823 MW, 3,300 MW and 406 MW respectively during the same period.

Net, net, though the share of coal-based power in the overall energy mix is expected to decline, it will still be significant as it will continue to meet the baseload demand.