A large proportion of coal-based power generation capacities in the private sector, under stress due to multiple factors, will remain depressed for a long time despite a raft of alleviation measures from the government, according to Crisil Research.

As of August 2017, about 21 GW of commissioned private sector coal based capacities were under stress for want of long-term power purchase agreements or because of poor offtake. With demand growth expected to remain tepid, the outlook for these capacities is bleak for at least the next few years.

Multiple woes In addition, a large number of plants, adding up to 35 GW capacity, are smarting from issues such as lack of fuel supply agreement or coal linkage, increase in cost of imported coal, project cost overrun due to delay in commissioning, and high receivables due to weak financial condition of procurers (state power distribution companies or discoms).

While the government’s SHAKTI and UDAY schemes are expected to alleviate stress related to fuel supply and delayed payments, finding offtake will be a huge challenge.

At the national level, demand for power is estimated to remain tepid at over 6 per cent over FY18-22 owing to reduced electricity intensity in GDP, rising efficiency and reduced technical losses.

Low offtake In a statement, Prasad Koparkar, Senior Director, Crisil Research, said, “Getting Discoms to sign new long-term PPAs that ensure stable offtake is going to be challenging. Adequate quantum of power tied up under already signed PPAs, expected tepid power demand growth, likely migration of high tariff paying industrial and commercial consumers to open access and availability of low-priced power in short-term market would imply few new PPAs in the near-term.”

“We do not expect discoms of major States such as Maharashtra, Gujarat, Tamil Nadu and Madhya Pradesh to sign fresh long-term PPAs before 2020, going by demand projections in tariff filings,” he said.

Rahul Prithiani, Director, Crisil Research, said: “Buyers are not showing interest in acquiring stressed assets due to the absence of firm power offtake agreements. Thus, very deep haircut or write-down may be required, for such assets to become viable. Consequently, we believe consolidation in the sector will be slow.”

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