India Is Looking At 60,000 MW Of Stressed Power Assets
Absence of long term Purchasing Power Agreements (PPA), non-availability of domestic gas and unviable tariffs have led to almost 60,000 MW (Megawatt) of stressed power assets in the country.
According to the latest analysis of ICRA, out of 60,000 MW of overall stressed thermal power generation assets in the private IPP (Independent Power Producer) segment, 26,000 MW comprise of assets distressed due to absence of long term PPAs, 12,000 MW stranded due to non-availability of domestic gas and the remaining 22,000 MW due to unviable tariffs in the PPAs and capital cost overrun.
Since the last few years, the power sector has been looming under crisis as the industrial demand remains subdued. This accompanied with the weak financial health of the state owned discoms, constrained with paying capacity has led to a slowdown in signing of long term power agreements, affecting the power companies. In the short term power trading market, these companies continue to face price and volume risks.
“The overall progress in signing of long-term PPAs by Discoms remained slow, with only four states namely Andhra Pradesh, Kerala, Telangana and Uttar Pradesh inviting bids for long-term power procurement over the past four-year period. Moreover out of the total bid capacity of 7.6 GW by utilities in these states, PPAs have been signed only for 1.4 GW by the utilities in Kerala and Telangana, while the signing of PPAs for the 2.4 GW capacity bid out by Andhra Pradesh utilities remains pending,” says the report.
Second, the gas-based generation capacity of about 12 GW in the private IPP segment remind stranded or under-utilised due to non-availability of domestic gas. The Discoms remain reluctant to procure power generated using imported R-LNG due to its relatively higher cost of generation.
Third, the recently commissioned and under-construction projects with competitively bid-based PPAs remain exposed to the risk of under-recovery because of the significant increase in capital costs. The capital cost spiked due to delays in execution, exchange rate volatility, funding problems.
All these issues along with the sizeable capital expenditure incurred by the IPPs have stretched their debt levels and debt coverage metrics.
“For a sample of eight leading IPPs with a combined power generation capacity of 40 GW, the total debt levels have increased from Rs 887 billion as on March 31, 2011 to Rs. 1955 billion as on March 31, 2017 with the capital expenditure incurred towards setting up power generation projects. During the same period, the debt coverage metrics deteriorated, while the interest coverage ratio declined sharply from 4.6 times in FY2011 to 1.2 times in FY2017,” according to the report.
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