Against the already identified ones, several more thermal power plants in India could potentially be classified as stranded assets, a report released on Wednesday by the Institute for Energy Economics and Financial Analysis (IEEFA) has found.

The report, titled ‘Seriously Stressed and Stranded: The Burden of Non-Performing Assets in India's Thermal Power Sector’, said the Parliamentary Standing Committee on Energy’s 2018 list of stranded assets in the thermal power sector could have underestimated the true number of such assets in the country.

It reviewed 12 non-performing/stranded assets in the thermal coal-fired generation sector. Some were previously identified by the government, and others were unable to operate at a price competitive enough to deliver viable returns to investors. These deteriorate the shareholder’s value as much as formally identified non-performing assets, said the report. Also, there are projects that have been on the drawing board for over a decade and most likely will never be developed.

Tim Buckley, lead author of the report and Director of Energy Finance Studies with IEEFA, said stranded assets in the domestic thermal sector are not limited to the 34 projects highlighted by the Standing Committee on NPAs. “The issue is deeper and the future pipeline faces similar risks,” he said.

“Each of the 12 non-performing assets reviewed had questionable economics behind their investment proposals, particularly as lower cost renewable alternatives can be built in a third of the time, and at 30 per cent or lower cost,” he added.

Gaming of the system

According to an RBI circular dated February 12, 2018, bankers were required to refer all loan accounts defaulting payments over 180 days, and holding over ₹2,000 crore in loans, to the National Company Law Tribunal (NCLT). Previously, lenders and asset owners were given 270 days to resolve non-payment of dues under a debt restructuring programme.

In April 2019, the Supreme Court quashed the RBI circular on project owners’ appeal, and also ruled to invalidate all actions taken since its implementation. This left the Indian financial sector facing open-ended promoter delays and gaming of the system, and prevented the speedy resolution of decade-old poor investment decisions, said the IEEFA report.

“As a result, the banking system remains hamstrung, stymying India’s enormous economic growth potential,” it added.

The $40-60 billion of non-performing or stranded Indian thermal power assets, which is adding to the burden of the troubled banking sector, is undermining the flow of capital critical to sustain economic growth and a renewable energy future, said Buckley. “While sinking in debt, the banks are unable to extend the necessary flow of capital critical to sustained, strong economic growth in India.”

Other industries in debt

The IEEFA report found that power distribution companies, or discoms, are also struggling under massive debt. There is currently upwards of $100 billion of non-performing or stranded assets between discoms and the thermal coal- and gas-fired power plant sectors.

“Instead of building uncompetitive and expensive coal-based thermal power plants, investments should be made in wind- and solar-based power systems as well as flexible gas-based peaker plants,” he said.

Now, 25-year, zero indexation renewable energy power purchase agreements are being signed at ₹2.60-3/kWh.

“Operators are finding that coal is less cost-competitive,” said Buckley. “India should cancel many of the worst thermal power plant proposals.”

The 12 power plants that were reviewed were: PPGCL’s Prayagraj Thermal Power Plant, Mahagenco’s Koradi Thermal Power Station, Lanco’s Amarkantak Thermal Power Plant, GVK’s Gas and Coal-fired Power Plants, KWPCL’s Korba West Thermal Power Plant, Tata Power’s Mundra Power Plant, CTNPL’s Cheyyur Ultra Mega Power Plant, Adani’s Godda Thermal Power Plant, RattanIndia’s Nasik Sinnar Thermal Power Plant,THDC’ Khurja Thermal Power Plant, SJVN’s Buxar Thermal Power Station and PCKL’s Gulbarga Thermal Power Station.