Over the last decade, India's coal-fired power generation capacity has risen by almost 2.5 times to 198 gigawatts ( GW) thanks to the private sector 's investment rush, which now controls 47 % of the total coal-fired ability. In 2009, the share was less than nine per cent.
Higher stakes would mean more favorable conditions for the private sector. But the other way around has happened.
According to the Association of Power Producers (APP), the Independent Power Producers ( IPPs) face double-whammy in the form of competitive bids for both the purchase of fuel and the long-term sale of electricity to distribution utilities (DISCOMs).
On the other hand, the public sector, led by NTPC, obtains fuel at the price notified by Coal India (CIL) and sells electricity on a cost-plus basis to DISCOMs.
In a petition to the Delhi High Court on 4 February, the APP claimed that such discrimination is not only against the original policy commitments, but also against the November 2018 recommendations of the High-Level Appointed Committee headed by the Cabinet Secretary.
The petition was filed challenging the constitutional validity of the recently held linkage auction under the Coal Scheme transparently in India (SHAKTI) for non-PPA utilities. Failure to secure a PPA within a specified time will cost IPPs the bank guarantee.
Mess caused by the UPA
The auction observed a lukewarm reaction. Of the approximately 12 million tons offered by CIL, about half remained unsold. The rest received an average premium of 8.5 per cent. The SHAKTI auction is not new and is part of the initiative of the Modi Government to rescue power plants that have been stranded without PPAs or fuel supply agreements (FSAs).
The mess was created by the UPA government, which was hyper-active in attracting private investment in coal power in 2005 and 2007. The National Electricity Policy was introduced in 2005. In 2006, the Tariff Policy mandated that all PPAs must be entered through tariff bidding at the beginning of 2011.
In 2007 , the National Coal Distribution Policy (NCDP) promised that, as a monopoly, CIL would first meet the full fuel requirements of the power sector at a notified price. CIL was also mandated to import, if necessary, coal and blend with its own products.
In principle, the policy was correct in that it provided for a level playing field in accessing fuel and competition on electricity tariffs. Private investment has taken place on the basis of a Letter of Allocation, a preliminary promise to offer fuel. But CIL was never ready to meet this enormous expectation.
By 2008, the government had become aware of the mess. But instead of alerting investors and banks, it stopped holding LoAs meetings. And by 2013, he tried to save his face by bringing a presidential decree to the CIL to grant coal.
CIL has drafted the ASF, which has allowed it to get away by offering barely half the total requirement. This created different classes within Gencos depending on the availability of fuel and the resulting impact on the cost of generation.
The private sector is suffering
But that's only half the problem. The crazy rush to set up power stations coincided with the age of scams. Some power plants have come up without any assurance for coal, but armed with PPAs at questionable rates. Between 2009 and 2014, India added 66 GW (gigawatt) of coal-fired capacity. Almost half of the added power was stalled due to lack of fuel or PPA.
With another 50GW capacity underway, supply was far outstripping demand, and DISCOMs saw the opportunity. Instead of entering into long-term PPAs, they focused attention on extracting better value through short-term purchases.
The trend has continued. Over the last five years , India has added a little more than 50GW of coal-fired power. However, only 4.5 GW of electricity was sold through long-term PPAs entered through tariff bidding. Rest is on short-term sales.
Capacity utilization (PLF) decreased from 84% in 2009-10 to 55%. Ideally, generators should expect higher tariffs for lower PLF operation. Yet the oversupply of coal-fired electricity and the growing availability of renewables contributed to their suffering. Tariffs remain low across all platforms.
The crisis did not affect the State sector, as these units pass on higher operating costs due to the low utilization of the DISCOM.
Forced PPAs to renegotiate?
The APP alleges that, while SHAKTI auctions are intended to ease the burden on IPPs, they are of an exploitative sort.
Exploitation is evident in the auction of linkages for IPPs that have PPA, but no FSA. Here, bidders are asked to offer discounts on the price of fuel. Two such auctions have already been conducted with discounts of up to seven countries per kilowatt-hour ( kWh) for the entire 25-year term of the project.
In other words, the Center has been forced to renegotiate legally valid contracts (PPAs). Some IPPs have agreed to this in a bad precedent. The APP did not raise the issue in its petition either.
