The revival prospects of a large number of stressed coal-based power plants with a total capacity of about 21 GW are bleak and their assets sale as well as consolidation will be slow despite steep haircut, Crisil Research said on Thursday.
A large proportion of coal-based power generation capacities in the private sector, stressed due to multiple factors, will remain in duress for a long time despite a raft of alleviation measures from the government, it said in a statement.
As of August 2017, about 21GW of commissioned private sector coal based capacities were under stress for lack of long-term power purchase agreements (PPAs) or because of poor/no offtake, the statement said.
With demand growth expected to remain tepid, the outlook for capacities is bleak for at least next few years, it said.
In addition, a large number of plants – adding up to 35 GW capacity – are smarting due to issues such as lack of fuel supply agreement or coal linkage, unviable tariffs due to increase in cost of imported coal, project cost overrun due to delay in commissioning, and high receivables due to weak financial condition of procurers (state power distribution companies or discoms), it added.
While the government’s SHAKTI and UDAY schemes are expected to alleviate stress related to fuel supply and delayed payments, finding offtake will be a huge challenge.
At an all India level, demand for power is estimated to remain tepid at 6 per cent over FY2018-22 owing to reducing electricity intensity in GDP, rising efficiency and reducing technical losses, its also said.
“Getting discoms to sign new long-term PPAs that ensure stable offtake is going to be challenging. Adequate quantum of power tied-up under already signed PPAs, expected tepid power demand growth, likely migration of high tariff paying industrial and commercial consumers to open access and availability of low-priced power in short-term market would imply few new PPAs in the near term.
“We do not expect discoms of major states such as Maharashtra, Gujarat, Tamil Nadu and Madhya Pradesh to sign fresh long-term PPAs before 2020 based on demand projections in tariff filings,” said Prasad Koparkar, Senior Director, CRISIL Research, in the statement.
Renewable energy capacities are being commissioned at a scorching pace, adding to the surplus. This will also result in higher operating costs for coal-based plants due to frequent cycling to balance demand, thereby, putting further strain on their finances, it said .
All this means the plants’ debt service obligation will suffer, and thereby impact lenders.