Reverse auction set to benefit stressed thermal power assets

Source: The Hitavada      Date: 05 Feb 2019 10:56:07


Business Bureau,

The recent decision of the Ministry of Power to procure 2.5 GW from operational coal- based power projects through reverse auction will give some relief to the already stressed thermal assets, a report said. Under the scheme, the government will select power generators, having coal-based projects without power purchase agreement (PPAs), through a reverse-auction based competitive bidding process. “This is a positive development for stressed thermal assets affected by lack of progress in signing of long-term and medium-term PPAs over the past five years," Icra Senior Vice President Sabyasachi Majumdar said.

In the month of October 2018, the Government had successfully tied up PPAs for 1.9 GW under a pilot scheme, the first of its kind for power procurement from coal-based power projects on a medium-term basis through an aggregator. 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. “The terms of the second pilot scheme are relatively favourable compared to the first pilot scheme,” he said.

In this second scheme, the variable charges will be escalated at the rate of 50 per cent of the wholesale price inflation. “However, the two pilot schemes provide only a partial relief, given that they amount to only 4.4 GW demand collectively as against about 15-16 GW operational coal-based capacity  lacking adequate long-term/ medium-term PPAs. Further, the IPPs do remain exposed to fuel price risk, with the available indexation mechanism  linked to WPI in the bidding document for the second scheme,” Majumdar added. He further noted that the adequacy of the bid tariff will be a key factor for the viability of such PPAs given large capital cost escalation experienced by the recently commissioned coal-based projects, continuing shortfalls in domestic coal availability and elevated international coal price levels in recent past.