High coal prices, weak rupee leading to a crisis in power generation firms

Essar, Adani, Tata plants under stress; Gujarat govt sets up panel to help stranded assets

With the cost of imported coal touching a six-year high and rupee weakening against the US dollar, power generation companies are witnessing a crisis of sorts, with Essar group shutting down its 1,200-megawatt (MW) power project and the Adani group utilising only part of its installed capacity in Mundra, Gujarat.

The only hope, company officials say, is from a high-powered committee set up by the Gujarat government with a mandate to find out how much haircut can be taken by stakeholders, including banks, state electricity boards and promoters, to make power projects viable.

It’s a double whammy. Not only has the seaborne thermal coal price hit a high of $110-120 a tonne, the rupee has also weakened to a record low of Rs 69 (currently trading at Rs 68.62) against the US dollar. The cost of imported coal for Indian power generation companies has touched a seven-year high (based on average prices) during the April-June quarter.

“Adani Power is running on couple of phases of its plant wherein it is supplying to Haryana under the power purchase agreement and supplying us only half of the committed power. Only Tata Power has been meeting the required 1,805 MW for Gujarat. We have written to independent power producers (IPPs) to restore their supply and meet their PPA commitments,” according to a top official of the Gujarat Urja Vikas Nigam Ltd.

High coal prices, weak rupee leading to a crisis in power generation firms

An Essar spokesperson confirmed that the plant had shut down during the April-June quarter. A Tata Power spokesperson said as of now, four units of its Mundra plant were operating and one unit was under major overhaul. Emailed queries to Adani Power did not elicit any response.

A petition by these power producers to raise electricity prices was shot down by the Supreme Court in April 2017. The three companies had even offered the Gujarat government to take over 51 per cent stake in these plants for Rs 1. But no decision was taken by the government so far.

Renewables is the future

According to experts, the cost of wind and solar infrastructure in the country, with a tariff of Rs 2.43-3 per kWh is extremely competitive, and almost 10-20 per cent cheaper than coal-fired power generation (NTPC’s 2017-18 average wholesale thermal tariff was over Rs 3.20/kWh).

An imported coal-fired power generation plant would require a tariff of around Rs 6 per kWh to generate a viable return. “Imported coal-fired power plants cannot compete with domestic coal-fired power, and they have no chance of being competitive against deflationary renewable energy with a zero tariff indexation over 25 years,” according to Tim Buckley, director of Energy Finance Studies, Australasia, of Sydney-based Institute of Energy Economics and Financial Analysis.

New committee

Early this month, the Gujarat government set up a committee led by former Supreme Court judge RK Agarwal to find a solution to these stranded assets. Former Reserve Bank of India Deputy Governor SS Mundra and former CERC chairman Pramod Deo are the other two members of the committee.

The committee had been asked to find out the amount of haircut that banks, project developers and electricity buyers were ready to take. The panel could also suggest measures for reduction in the cost of power generation.(Article Source : BS)