ANALYSIS. Is a distress sale on by private power producers?

The power picture is bleak but in a different way this year. There is no demand.

While all power producers have been hit, it has been especially bad for the private players. Many appear to be selling electricity at rates lower than even Central and State sector plants.

Nearly half the 59,627-MW capacity in the private sector remained unutilised, with their Plant Load Factor down to 56.03 per cent from 61.60 per cent. Yet, the private producers are selling more, as much as 19 per cent more than Central and State sector plants.

In the absence of any long-term commitments, this suggests impromptu sales and that too at rates too low even for State or Central utilities.

This defies economic logic. For, most State utilities are old, with capital costs fully recovered. So, the power generated by these units is cheaper than the new capacities, which generally find it tough to survive below ₹5 a unit.

The average cost of NTPC power is also lower than the private producers’. Further, NTPC invests in capacities against long-term contracts that ensure fixed cost recovery even if discoms do not buy the power as committed.

All this means the private producers are resorting to distress sale of power to ensure some capacity utilisation. The low round-the-clock average on power exchanges — ₹2.30-3.30 a unit in the North and West — bears this out. Even the power-starved southern States are not paying more than ₹4 a unit.

As an analyst with a global consulting firm said: “Private sector capacities of 20,000-25,000 MW could not find buyers. Even some Central sector plants with power purchase agreements (PPAs) are idling as distribution utilities (discoms) prefer to pay the fixed charges than take delivery of electricity that they cannot sell.”

With imported coal cheaper than last year and domestic fuel supplies up by more than 8 per cent during the quarter, the blame goes entirely to a letup in industrial demand. According to the Central Electricity Authority (CEA), coal-based generation in 2015 has been flat, going up only during the peak summer months of April-June, and that too by just about 2 per cent. All of the 18,733 MW coal-fired power generation capacity added since June 2014 is idling. The gravity of the situation can be gauged also from the falling capacity utilisation at coal-fired power stations. The average PLF was down to 61.26 per cent in April-June this year from 66.88 per cent in the same period in 2014.

Much of this is of the Central sector plants; their PLF dropped five percentage points to 72.60 per cent. The segment contributes nearly a fourth of the country’s coal-fired capacity and 85 per cent of the plants belong to NTPC. Generation by State utilities declined 5 per cent during April-June. But the plight of the private producers is worse, and that is bad news also for banks. Said an analyst with a top multinational bank: “A number of private producers are selling power merely on recovery of variable cost basis so as to generate some cash to pay banks.”

But how long can the private producers continue on this path? While much depends on the expected revival of industrial demand, both the analysts are unanimous that a shakeout is imminent.

“There is a huge surplus capacity sufficient to meet demand for the next three-four years, during which period some private producers will go bankrupt. This will push up the stress levels of banks,” said one.

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