How India Plans To Revive Stressed Power Plants

How India plans to ease power sector stress...

Emissions billow from smokestacks at a coal-fired power plant in India. (Photographer: Kuni Takahashi/Bloomberg)  
Emissions billow from smokestacks at a coal-fired power plant in India. (Photographer: Kuni Takahashi/Bloomberg)  

The government approved suggestions of a group of ministers including fresh coal supply and easier power sale norms to revive stressed power plants.

The Cabinet Committee on Economic Affairs decided to go ahead with the recommendations approved by the group, originally suggested by a high-level empowered committee, RK Singh, minister of state for power, said in a press conference. The committee was formed after power producers challenged the Reserve Bank of India’s February 2018 circular for stricter bad loan recognition timeline.

Thirty-four power plants with a total capacity of 40,130 megawatts and Rs 1.8 lakh crore worth of loans were stressed, according a list provided by the Finance Ministry in 2017. Of these, 11 with a capacity of 11,000 MW have been resolved.

According to the group’s suggestions, here’s what was approved to revive the rest and how it will help:

Fresh Coal Linkage

The government will provide coal linkage for three months to a year to independent power producers that can generate electricity and sell it under short-term power purchase agreements.

Objective: Many thermal power plants have fuel-supply agreements or letters of assurance but don’t have medium- or long-term pacts to sell power. They can’t operate as coal supply cannot be used for short-term sale. The committee came to the conclusion that if power is sold through short-term pacts or in the day-ahead market through transparent bidding, it would not only help power producers but also benefit consumers by enhancing supply and reducing prices.

State-Run Power Aggregator

NTPC Ltd. has pacts to sell power with several distribution companies across India, including for the capacity yet to be commissioned. The committee recommended that it can act as an aggregator to buy electricity through transparent bidding from stressed power plants and offer it to discoms till its own plants or units are commissioned.

Objective: It will create demand for power generated by stressed units.

Late Payment Surcharge

The ministry of power may engage with the regulators to ensure that late payment surcharge is mandatorily paid in the event of delay in payment by discoms.

Objective: It’s aimed at timely payment to power producers.

Avoid Cancellation Of Approvals, Agreements

Discoms, Coal India Ltd., Power Grid Corporation of India Ltd., the Ministry of Environment and Forests, and appropriate state governments may be advised not to cancel power-purchase and fuel-supply agreements, transmission connectivity and environmental approvals, including for water, even if the project is referred to the insolvency court or is acquired by another entity. It recommended clearances may be linked to the plant and not to the promoter.

Objective: It will ensure that the plant remains operational even during time of stress.

Coal-Supply Shortfall Can Be Carried Forward

If a shortfall in the supply of coal to generator is caused because of the ministries of coal or railways, it won’t lapse and can be carried over to up to a maximum of three months.

Objective: Coal companies and railways will be responsible to supply the targeted quantity of coal, and ensure shortage of supply is made up in subsequent months.

50% E-Auction Quota For Power

Half of the coal allocation through e-auctions should be for the power sector.

Objective: In recent months, the quantity of coal earmarked for special forward e-auction for power producers fell while the volume earmarked for spot auctions rose. As a result, premium for forward e-auction increased, pushing up the cost of generation and causing stress. The measure aims to ease this stress.

Annual Contracted Quantity Based On Efficiency

The Central Electricity Authority should prescribe an upper ceiling for annual contracted quantity per megawatt based on efficiency and irrespective of the capacity and actual consumption.

Objective: As of now, the annual contracted quantity for coal under a fuel-supply agreement depends on the heat rate approved by the regulator. Smaller and old plants have a high heat rate, and thus higher allocation, which leads to inefficient use of coal. The new measure will encourage efficient plants and better use of the scarce resource.

Use Of Coal Linkage If Discom Defaults

A generator should be able to terminate the agreement in case of default in payment by the discom and use coal linkage for short-term pacts for up to two years or another buyer of power under a medium- or long-term agreement is found before that.

Objective: Power producers can’t use coal linkage for short-term pacts after terminating a power-purchase pact because of a default, making it impossible to operate the plant till a new buyer for electricity is found. The measure will help them keep selling power.