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Higher tariff in 2nd auction for mid-term PPA auction positive for power producers: ICRA

The government had brought this scheme last year in April to give relief to those coal-fired power plants which were operational but starving for coal in the absence of any PPA with discoms

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Higher tariff in 2nd auction for mid-term PPA auction positive for power producers: ICRA
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The power ministry's second auction for procuring 2.5 GW of thermal power in the medium term at a higher tariff of Rs 4.41 per unit compared to Rs 4.24 per unit in the first round is positive for power producers, but the signing of sale agreements with discoms remains crucial, ICRA said on Thursday.

The completion of the second round of medium-term power purchase agreement (PPA) auctions along with the slightly higher tariffs discovered is positive for the independent power producers (IPPs), the rating agency said in a statement.

The government had brought this scheme last year in April to give relief to those coal-fired power plants which were operational but starving for coal in the absence of any PPA with discoms. The PPA is a prerequisite for getting fuel linkage or supply under the existing legal framework.

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The Ministry of Power recently completed the reverse auction under the second scheme for procurement of 2.5 GW from operational coal-based power projects having no power purchase agreements for a period of three years.

It said the lowest quoted tariff under this scheme was at Rs 4.41 per unit, which is slightly higher than the Rs 4.24 per unit discovered in the first medium-term PPA scheme, wherein 1.9 GW was tied up.

Commenting on the auction, Sabyasachi Majumdar, Group Head - Corporate ratings, ICRA Ltd, said, "The tariff discovered is largely in line with the cost of generation for a recently commissioned coal-based power project having capital cost of Rs 7.0 crore to 7.5 crore per MW and with part availability of coal under long-term domestic linkage."

The first scheme did not see a full subscription to the offered capacity of 2.5 GW, partly due to the lower tariff along with the absence of fixed charges and non-scalable tariffs.

However, the second scheme is more favourable for the developers with the presence of fixed charges and indexation for variable charges. The full 2.5 GW was subscribed under the second medium-term PPA scheme, albeit at a slightly higher tariff, it said.

However, the two medium schemes only provide partial relief, given that the capacity that will be tied up under these schemes is 4.4 GW against the 15-16 GW operational coal-based capacity lacking adequate long-term PPAs, it added.

As per the terms of the second auction, the tariff quoted by the bidders will have fixed and variable components, wherein the fixed tariff will remain constant for the PPA period.

The aggregator (appointed by the government) will sign PPAs with the winning bidders and back to back power sale agreement (PSA) with state distribution utilities (discoms).

"From the discoms perspective, the slightly higher tariff discovered in the second PPA scheme is a negative development. Nonetheless, the quoted tariff in the second scheme is lower than the tariffs discovered in the DEEP portal (in the range of Rs 4.5 to 6.0 per unit) for supply on a short-term basis under the various bids called by state discoms in recent months. In this context, the timely signing of PSAs by the aggregator with the state distribution utilities remains crucial," Majumdar added.

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