The power ministry's preference for coal supply to generation projects that supply to state utilities under an agreement will affect merchant power capacity in the 12th Five-Year-Plan.
Merchant power is power sold without a long-term power project agreement (PPA). In its recommendation to the coal ministry, the power ministry has recommended that release of coal under linkages granted earlier should be subject to 85 per cent of the power being tied up through tariff-based competitive bidding.This ensures that cheap availability of domestic coal translates into competitive power tariffs for end consumers. “Actual drawal of coal will be subject to 85 per cent of power being tied up through long-term PPA with Discoms through tariff-based competitive bidding,” the power ministry said in the letter. The preference would not be available for PPAs signed by NTPC without going through the competitive bidding route prior to January 5, 2011.
Private power producers are already facing trouble with coal supply, and are not very happy with this decision. “If this comes into effect, a lot of power companies will be trying to sign PPAs with state utilities. Also, all of those who are setting up merchant power capacity will not get coal,” said a chief executive officer of a power company but refused to be quoted.
Merchant power plants sell power at market rates and have the benefit of higher margins during shortages though fluctuations in the rates can erode their profitability.
Secretary in the power ministry, Uma Shankar, said looking at the coal that is likely to be available, they have given preference to projects having a PPA.
“Projects that have a PPA are under regulatory tariff. Merchant power projects can buy coal from other sources like e-auctions, as they are not bogged down by the level of tariff by the regulatory commission,” Shankar told Business Standard. The price of coal bought by way of auctions is much higher than that of coal supplied at fixed tariffs by Coal India.
The power sector is currently facing a huge downside due to coal shortages with reduced supply from Coal India.
According to a report by Motilal Oswal, last month, the plant load factor (PLF) of coal-based power projects across the country was at 73.4 per cent, which is 1.24 per cent lower than last year.
Analysts say the overall impact of this suggestion can only be on standalone merchant capacities. “The nature of merchant plants will undergo change with these global and local coal-sector developments. No pure play merchant power capacity will come up, and sale mix will be dominated by PPAs and direct open access contracts, with merchant sales being largely opportunistic,” said Kameswara Rao, head of power practice at PricewaterhouseCoopers.
Analysts also say the tougher call ahead is the ability of state distribution utilities to off-take all the power. “State utilities are already under liquidity pressure, and with cost of funds going up, deficits are harder and expensive to finance. There is need to get regulatory reforms back on track so tariffs catch up with costs, and accelerate distribution reforms through franchisees or other in-house models so part of the tariff hike can be saved through improved efficiencies,” said Rao.
Industry insiders also say preference to PPA-based projects is just one of the suggestions. In the 12th Five-Year-Plan, the country plans to add 100,000 Mw of power.
No comments:
Post a Comment