New coal allocation policy positive for power sector but lack of fresh PPAs and subdued energy demand remain a concern: ICRA

ICRA also noted that private IPPs were adversely affected by the lack of fuel supply agreements (FSAs) and lack of fresh PPAs and subdued energy demand growth remain areas of concern.

The new coalallocation policy SHAKTI, is expected to positively benefit the coal-based power generation of about 28 GW capacity in the private independent power producer (IPP) segment, according to credit rating agency ICRA.

“Also, the improved availability of domestic coal since financial year 2015 has benefited thermal IPPs, especially those with competitively bid PPAs based on domestic coal which had been unable to pass-through the additional cost of imported coal to the state distribution utilities,” ICRA said in a report today.

The agency also noted that private IPPs were adversely affected by the lack of fuel supply agreements (FSAs) and lack of fresh PPAs and subdued energy demand growth remain areas of concern. About 26 GW capacity in the private IPP segment — both commissioned and under-construction — do not have long-term PPAs and remains exposed to price and volume risks in the short-term trading market,” Girish kumar Kadam, Sector Head & Vice President, ICRA Ratings said.

He also said this has affected the ability of IPPs to off-take domestic coal under FSAs with Coal India Limited (CIL) and the supply of coal is subject to availability of valid long-term PPAs or medium-term PPAs with distribution utilities.

ICRA also pointed out delays continue to be observed in filing of tariff petitions and issuance of tariff orders in states like Rajasthan, Tamil Nadu and Uttar Pradesh. “The progress in issuance of tariff orders for the current fiscal has remained modest, with the State Electricity Regulatory Commissions (SERCs) with only 18 out of the 29 states issuing tariff orders so far, with an average tariff hike of 4 percent this financial year,” the report said.

The progress on refinancing of the discom debt with issuance of bonds worth Rs 2.32 lakh crore by states has improved the liquidity profile of the discoms to some extent, according to ICRA. “However, the debt takeover as agreed in the UDAY MoUs has not materialised fully in some states and consequently, the reduction in book losses is likely to be lower than anticipated earlier,” Kadam said.

Based on the debt takeover progress so far for discoms in 14 states, ICRA expects the discoms’ book losses level throughout the country to decline from Rs 60,000 crore in the previous financial year to Rs 35,000 crore in the current fiscal.

Source-ET

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