PMO-led fuel drive clogs 21,503 MW new capacity

Projects have no PPAs,so don’t qualify for firm coal supplies

Written by Anil Sasi | New Delhi | Published:May 28, 2012 1:37 am

Despite the PMO’s intervention in guaranteeing coal supplies to upcoming thermal projects,developers of an estimated 21,503 MW of new coal-fired capacity coming up over the next three years could still be left without any assurance on fuel to operate their projects.

With the PMO making it conditional for projects to have a power purchase agreement in place with distribution utilities to be able to get firm fuel linkages from Coal India (CIL),those unable to ink these pacts now find themselves out of the list of projects totaling about 50,000 MW that has been drawn up to sign firm fuel pacts with CIL.

Following an intervention by the PMO in February this year,CIL was directed to convert all preliminary fuel supply pacts inked with thermal project developers into firm and legally-binding fuel supply agreements and ensure sufficient fuel supplies. This being contingent on power plants having in place long-term PPAs with distribution utilities.

For promoters of these 21,000-odd MW who now find themselves left in the lurch,it is a double whammy. Apart from not having the comfort of a PPA,which means no assured buyers of the generated electricity,there is now the problem of not getting access to guaranteed fuel supplies in the form of an FSA from CIL. This makes it even more difficult for the projects to get commissioning.

The overall situation is even more serious,considering that beyond the 21,000 MW of projects based on CIL linkages,another 5,000 MW of gas-based capacity and about 10,000 MW of projects with captive mine blocks are all coming up over the next three to five years without firm PPAs in place. That makes it close to 40,000 MW of new capacity that is coming up without any assurances of end-users buying the electricity. Especially,as there has been no initiative from CERC to develop a market for medium-term standard contracts.

“These projects are not merchant capacity (those without PPAs) by choice. Most of them want the comfort of having identified buyers,but the market platform is missing,other than day-ahead power exchanges. In addition to long-term 25-year PPAs,the need of the hour is to develop standard contracts of shorter duration of say 1,3 or 5 years,with firm prices,” an official involved in the exercise said.

There is the danger that the woes faced by the project developers could spill over to lenders,which could result in investments worth at least Rs 1,00,000 crore facing the NPA risk.

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