Amidst moves to revive stressed thermal assets of 45,000-MW capacity, what has slipped under the radar is the need for coal linkages if the projects are to be made viable. For, it is estimated that, operating at 70% PLF, these plants would annually require in excess of 125 million tonne of coal, with a possible reliance on imports increasing costs and threatening project viability.
The original plan mandated such producers developing captive greenfield mines to meet their coal needs. However, it would now be difficult for the stressed assets to mobilise capital to restart projects and develop coal mines at the same time. “If a resolution for the sector has to be achieved, then a collective solution for fuel supply is needed. This could entail tasking an independent coal company to finance, develop and supply coal at notified rates to all stressed thermal assets,” says Kameswara Rao, Partner, GRID at PwC India.
With more than Rs 1 lakh crore of debt stuck in stressed thermal plants, their lenders have been trying to protect the value of the assets through resolution outside the bankruptcy courts. In the wake of an RBI order which had threatened to push all stressed power companies to the National Company Law Tribunal (NCLT), 34 power producers with a cumulative 40,000-MW capacity moved in November the Supreme Court, which offered them relief.
A Crisil report has said that “a 40-60% haircut, along with financial safeguards, can resolve as much as Rs 1 lakh crore of debt stuck in coal-based power projects.” Jaiprakash Associates’ Prayagraj Power plant became the first of the nearly dozen stressed projects to be resolved outside the bankruptcy law after Resurgent Power acquired a 75% stake in the company. In October, the apex court allowed three power projects run by Adani Power, Tata Power and Essar Power to renegotiate their power purchase agreements (PPAs) to reflect the higher cost of imported coal.
Somesh Kumar, Partner and Leader-Power & Utilities at E&Y, says, “the existence of guidelines to ensure offtake of power by state discoms, and coal linkages in the form of mine allocation or e-auctions could make the revival of stressed assets smoother.” PwC’s Rao stresses that most stressed projects are inland and closer to mines. “The transportation cost itself would make it prohibitive to undertake imports. At best, a limited percentage could be used in a blend.”
As it is, oversupply in the market means these projects would find it difficult to run at above 30-40% PLF range. “Unless industrial and commercial demand improves, the stressed plants would take at least 3-4 years to take their utilisation levels beyond 40%,” says Rupesh Sankhe, a senior analyst with Reliance Securities.
At the same time, thermal power would continue to be critical for India’s needs. Commenting on the growing preference for renewable energy, Prashant Khankhoje, director Global Energy, says, “while all recent renewable tenders have discovered tariffs below the Rs 3/kWh level, we need to wait for such projects to get operational before the last word is said on them. For one, the quality of equipment they have used owing to cut-throat competition remains a grey area. For another, grid penetration and balancing would be challenging given that renewable power is not available round the clock.”