New power plants face strain on insufficient off-take agreements: India Ratings

The power plants commissioned since April 2014 with a capacity of 13,900 Mw face financial uncertainties due to lack of sufficient offtake agreements and transmission constraints. India Ratings and Research (Ind-Ra) in its report estimates that the annual capacity charge losses could be as high as Rs 5,100 crore (excluding return on equity) for these plants. Capacity charges could be partially recovered, if power is produced by these plants and sold in the power exchanges or through merchant power sale.

Low prices of imported coal might allow these plants to be reasonably competitive at the generation cost (excluding return on equity) of about Rs 3.6 per unit and if they are located near the coastal region. However, stranded generation from these plants for a year might be as high as 37 billion units (BU) compared with the total traded short-term volume of about 99 BU in FY15.

India’s coal-based power plant capacity was 167,207 Mw at end-June 2015 and 8.3 per cent (13,900 Mw) of the total capacity was added from April 2014-June. Of the newly-commissioned plants, the capacity of 40 per cent of the plants is under strain and 37 BU of generation might be foregone annually, unless sold through short-term markets. While 70 per cent of the power is tied up through long-term/medium-term offtake agreements, about 1,300 Mw of the tied-up power encounters transmission constraints.
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