Power demand, last month, fell by close to 30 per cent from the day nationwide lockdown
was announced. States are thereby resorting to reduced power purchase and are buying from cheaper units. Generation units, which have higher variable cost, are not finding any takers. These are mostly the non-pithead units. These include several units of NTPC, India’s largest power generator, states’ own units and privately-owned units that are away from coal mines.
Tariff of thermal power plants has two components – fixed cost, which is the capital cost and variable cost, which is the fuel cost. Under a long-term power purchase agreement (PPA), buyers are obliged to pay the fixed cost to generators even if they do not procure power during a certain period.
Sector experts believe, the private units would be the first to take a hit. India Ratings, in its latest report on the power sector, said, “NTPC, with better liquidity along with better access to the banking system/capital markets, would tide over the situation.
However, liquidity of small independent power producers, including renewables, may see tightening post June 2020.”
The Confederation of Indian Industry (CII), which has prepared a white paper on India’s power sector, has estimated that thermal power generators could face an additional ~20,000-25,000 crore cash crunch. It has also estimated a loss of ~30,000-40,000 for power distribution companies.
This is due to fall in consumption and delayed collections owing to temporary suspension of offline collections, and cash crunch expected after lockdown
“The liquidity gap may also transmit to other players in the value chain, namely conventional and renewable generators, transmission licensees and vendors/ service providers in our sector. This could impact their ability to buy fuel, meet debt service obligations and ensure seamless operations,” the CII said.
Power generating units are not opting for shutting down their operations as they will end up losing their fixed cost recovery. India Ratings, in its report, said, the demand glut is unlikely to impact the fixed cost recovery of power plants, “as most of them are sitting on a healthy stock of coal, which allows for capacity declaration for fixed cost recovery.”
However, it further said, given the muted demand scenario and the must-run status for the hydro, renewables and nuclear power, the thermal generators would stand to suffer more.
In the coming months, as the liquidity situation worsens and power demand picks up, sector executives fear most units would be unable to buy coal. “Already, a lot of private units are not picking coal as they do not have surplus cash,” said a senior executive.
A K Khurana, director general of the Association of Power Producers (APP), a representative body of private power producers, is of the view that if liquidity crunch is not resolved on time, it sets into motion a vicious cycle and impairs the entire value chain.
“Ideally, liquidity should be injected at the discom level as discoms are revenue generators. Otherwise, it should be done at the fuel supply level. With the correct liquidity infusion method, a vicious circle can be converted into a virtuous circle,” Khurana added.