HOW TO REVIVE THE THERMAL POWER SECTOR?

“The major difficulties being faced by the coal-based projects are regarding availability of coal and payment delays by the DISCOMs. Ashok Khurana, Director General, Association of Power Producers (APP)”

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HOW TO REVIVE THE THERMAL POWER SECTOR?

In an exclusive interview with Subhajit Roy, Association of Power Producers Director General Ashok Khurana outlines the actions to be initiated by the government in reviving the health of Indian thermal power sector.

Thermal electricity accounts for more than 86% of India’s total power generation. However, the sector is facing acute fuel shortage. What’s your take on this?

The coal-based power plants are facing acute fuel scarcity. Not only the private sector coal plants, but even majority of the public sector plants too are experiencing difficulty, including NTPC. In fact, a review on 23rd of October by the CEA revealed that 31 plants were having critical or supercritical stock and 90 plants were having coal stock of less than 7 days. This level of low stocks is a matter of serious concern, and according to the norms there have to be 23 days of stock. Many load centre plants are facing shutdown due to nonavailability of coal. So, I basically feel that coal shortage is the biggest issue being faced by the power sector today. We expect the power demand to pick up because of the positive impact of SAUBHAGYA (Pradhan Mantri Sahaj Bijli Har Ghar Yojana) and economy growing at 7.5-8 per cent. We need to find a way to augment coal supply and in case the domestic production is not adequate, then import should be resorted to meet the deficit. For the coastal plants there is no rationale of transporting coal from hinterland to a coastal plant and hinterland plants importing coal. This needs rationalisation and the government should allow swaps in the cases where the rationalisation results in gain to consumers by way of high PLFs or low tariffs. This year, our peak power demand grew the most and is expected to rise further as household electrification is being accelerated and elections are on the horizon too.

India has gas-based plants with installed capacity of about 25 GW, of which around 11 GW are stranded. In this context, how do you see the future of thermal power in India?

Gas projects are imperative in our evolving energymix wherein the share of renewable is increasing at a very fast pace. The gas-based projects, with low rampup time can be used for balancing and ancillary services, to meet the grid requirements.

We do not have sufficient gas and it is very clear that if we import LNG to run the gas-based plants, it will not be affordable. So, the High-Level Empowered Committee (HLEC) has suggested revival of E-RLNG Scheme that will provide subsidy support and tax exemptions on imported RLNG (re-gasified liquefied natural gas). A related proposal has been made to the government previously for price efficient sourcing of gas by way of: ONGC gas from deep water fields – existing 5.45 MMSCMD of ONGC gas be allocated to power sector. A separate bucket for power sector needed for ONGC gas from deepwater fields; ONGC envisages production of another 16 MMSCMD gas from deepwater fields by 2020. An aggregator like GAIL to bid for the gas on behalf of the gas-based power plants.

It is also proposed that, balance gas requirement for stranded power plants to be met from RLNG.

With stranded projects operating at 45 per cent PLF, the variable tariff will be around Rs 4.35 per unit. Eying a target tariff of Rs 4.70 per unit, there is a margin of 35 paisa per unit towards fixed cost recovery. This margin may not be sufficient for debt servicing and hence government support in form of budgetary allocation or PSDF support along with preferential gas price for power sector is very much needed. As the ONGC production from deepwater gas increases, and same can be allocated to power sector, the share of RLNG will reduce thereby making the tariff more competitive.

What are the major difficulties the coal-based projects are facing?

The major difficulties being faced by the coal-based projects are regarding availability of coal and payment delays by the distribution companies (DISCOMs). The payment delays fall into two categories – ‘Dues for Power sold’ and payment due to ‘Change in Law’ items. The total dues are upwards of Rs. 38,000 crore. It should be noted that it is impossible for any generator to keep his assets in bank’s ‘Standard’ category, in an ecosystem which stipulates default even if there is just 1-day’s delay in payment of interest or principle, while all payments for inputs are made in advance – such as for coal and evacuation of coal – however at the same time the output payments are delayed beyond 6 months, and are progressively increasing.

In this context, HLEC has also made certain recommendations – coal linkage for short-term power procurement; pre-declared linkages for procurement of power for aggregated demand from states; increase in quantum of coal for the special forward e-auction for power sector; non-accrual of short supplies of coal; mandatory payment of late payment surcharge; among others. if the recommendations can be operationalised within a fixed timeframe, it will contribute towards reducing stress in the sector, and may bring many projects in the ‘Standard’ category.

Do you feel renewable energy is a threat to thermal’s future?

Looking at the power requirements of the country, renewable energy is not a threat. If I take into consideration the recent peak demand figures, it is 180.4 GW – already up by 7.5 per cent and growing. It should be noted that peak requirements cannot be met by renewable at night, and it has to come from thermal. Looking at the variability and intermittency of renewable, we need thermal as back-up during daytime and to meet the peak power requirements at night time. Therefore, I do not see any threat from renewable.

Our power requirements are so huge, that even if we take the power from all sources – gas, hydro, coal and renewable, we would have adequate off-take, provided we have DISCOMs who are financially strong and are willing to meet the demand and pay for the power. Presently, it is their financial capability which is impacting the off-take. The choice before us is very clear, that the DISCOMs have to improve their operational and financial performance and meet the requirements of the consumers, or we shift to separation of content and carriage, as is envisaged in the proposed Electricity Act amendments. This reform will give consumer the opportunity of choosing their supplier.

How to address the challenges?

Issues which are causing acute stress and need immediate consideration are:

 The generator should be allowed to import coal or procure through E-Auction to meet the deficit of coal supply under FSAs, and the tariffs to be adjusted accordingly, to offset the additional cost.
 Setting up an institutional mechanism to ensure that pending receivables from DISCOMs for power sold and regulatory dues, unless stayed by the appellate authority, are paid without any delay.
 Aggregating the demand from different states, and bringing out bids for power procurement against pre-declared linkages.
 Resolving the restrictive coal usage policy conditions, by allowing linkage coal for use against short term procurement of power.

Do you feel, if we do not deal with the challenges immediately, there will be many more NPAs?

Yes, the challenges related to coal supply and payment should be addressed without any delay. These issues have been pending since long, and the delay in the decision making is progressively increasing the stress, and may lead to further accretion of NPAs.

What is your outlook for Indian power sector beyond 2019?

With demand increasing and the slowing down of capacity addition, the outlook is very promising, subject to resolution of the above-mentioned issues. It is essential to operationalise an institutional arrangement, by which ‘due payments’ to Generators are made by any nominated financial institution, be it PFC, REC, or SBI, and the arrangement is backstopped by the state department of finance. Further, a very realistic estimate of coal availability and its evacuation should be in place. Necessary arrangements are to be made to import the deficit, so that the plants can run at high PLFs and meet the growing demand.

To ensure that the households connected under SAUBHAGYA get adequate power, it is imperative that the states lagging in meeting their operational and financial milestones under UDAY are monitored very closely and brought on the path of commercial sustainability.