Thermal power projects currently under various stages of construction in the country are facing viability issues due to either weak sponsors and poor offtake by distribution companies or fuel issues, research and ratings agency CRISIL has said.
“CRISIL estimates around 24,000 Megawatt capacities are facing viability issues. Of these, 13,000 Mw capacities face commissioning risks because of weak sponsors, while the rest are reeling because of poor offtake by discoms or inadequate fuel arrangements,” CRISIL said in a statement today. It added around a third of the capacities with weak sponsors can be revived through debt restructuring or sale to a new sponsor.
The government has taken initiatives to increase coal production over the past year and the 5:25 refinancing scheme of the Reserve Bank of India (RBI) has reduced operational capacities at risk from 46,000 Mw estimated earlier to 40,000 Mw currently.
“While lack of fresh long-term PPAs continues to impact generation capacities, facilitation of medium-term PPAs and corresponding coal linkages, continued focus on augmenting domestic coal production, and facilitation of open access by states can help further reduce the capacities at risk,” said Sudip Sural, Senior Director at CRISIL.
The ratings body also said the aggregate gap, or loss of distribution companies (discoms) of 15 states that have joined the Ujwal Discom Assurance Yojna (UDAY) would more than halve to 28 paise per unit by fiscal 2019 compared to 64 paise last financial year (2015-16). Therefore, the aggregate losses of these discoms are seen declining 46 per cent to Rs 20,000 crore from Rs 37,000 crore earlier.
However, the gap will still be well above the ‘nil’ level envisaged under UDAY because some states with very high aggregated technical and commercial (AT&C) losses have lesser preparedness to reduce it because of inadequate feeder separation, feeder and distribution transformer metering, and poor track record of other efficiencies. Also, the ability to increase tariffs is restricted in some states because elections are due within 12 months, cross-subsidisation is high, and tariff orders are delayed.
The gap is calculated as the difference of average revenue realised (ARR) and the average cost of supply (CoS). “Rajasthan, Haryana, Chhattisgarh, and Uttarakhand are expected to fare better in the implementation of UDAY and are therefore likely to be the biggest beneficiaries. However, UP, Bihar and Jammu & Kashmir are expected to be the laggards. These three states would account for almost two-thirds of the gap in fiscal 2019. So concerted efforts by them will be critical to narrowing future gap,” said Gurpreet Chhatwal, Business Head - Large Corporates at CRISIL.
Energy requirements of discoms are expected to increase at a compound annual growth rate (CAGR) of 7 per cent by financial year 2018-19 as compared to around 4 per cent till 2015-16. However, this will not be a major respite to generation capacities that do not have long-term PPAs as fresh signing of PPAs seems unlikely. This is because 25,000 Mw of capacities with already-signed PPAs are expected to be operational by fiscal 2019 and there will also be some pick-up in plant load factors of existing capacities because of better fuel availability.
CRISIL said any uptick in long-term PPA signings is possible only if discoms turn profitable by fiscal 2019 and strive to meet the government’s ‘Power for all’ objective.
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