• Electrical India
  • Aug 5, 2017

New Coal Allocation Policy Positive for Power Sector

 The implementation of the new coal allocation policy, namely SHAKTI, is expected to positively benefit the coal-based power generation capacity of about 28 GW in the private IPP segment (both under-construction and operational), according to ICRA. These were hitherto adversely affected by the lack of fuel supply agreements (FSAs). Also, the improved availability of domestic coal since FY2015 has benefited thermal IPPs, especially those with competitively bid PPAs based on domestic coal that had been unable to pass-through the additional cost of imported coal to the state distribution utilities.

  Says Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, “However, lack of fresh PPAs and subdued energy demand growth remains the areas of concern. About 26 GW capacity in the private IPP segment (both commissioned and under-construction) does not have long-term PPAs and remains exposed to price and volume risks in the short-term trading market. Moreover, this has affected the ability of IPPs to off-take domestic coal under FSAs with Coal India Limited (CIL), as the supply of coal is subject to availability of valid long-term PPAs or medium-term PPAs with distribution utilities.”

  The progress in issuance of tariff orders for FY2018 has remained modest, with the State Electricity Regulatory Commissions (SERCs) with only 18 out of the 29 states issuing tariff orders so far, with an average tariff hike of 4% for FY2018. Further, delays continue to be observed in filing of tariff petitions and issuance of tariff orders in large states like Rajasthan, Tamil Nadu and Uttar Pradesh.

  “The progress on refinancing of the discom debt with issuance of bonds worth Rs 2.32 lakh crore by states has improved the liquidity profile of the discoms to some extent. However, the debt takeover as agreed in the UDAY MoUs has not materialised fully in some states and consequently, the reduction in book losses is likely to be lower than anticipated earlier. Based on the debt takeover progress so far for discoms in 14 states, ICRA expects the discom book losses on an all India level to decline from Rs. 60,000 crore in FY2016 to Rs. 35,000 crore in FY2018,” Kadam added.