PLF for new power plants could rise as old units head for closure

The Union finance minister, in her maiden Budget speech, spoke of retiring old and inefficient power plants. The move, industry officials and experts have said, will phase out 20-30 gigawatt (Gw) of thermal capacity from the system.

“Recommendations of the high-level empowered committee (HLEC) on retirement of old and inefficient plants, and addressing low utilisation of gas plant capacity due to paucity of natural gas, will also be taken up for implementation,” Nirmala Sitharaman said.

While the announcements did not include any big bang measures for the power sector, experts said the phasing out of old plants and improving utilisation of natural gas-based plants could go a long way.

Industry officials point out that these capacities would be in excess of 20 Gw and most of these are state-owned comprising sub-critical technology. 

As of May 2019, India’s total thermal power capacity stood at 226.3 Gw.

“Phasing out old capacities will help improve demand for power from efficient plants. The focus needs to be on lower cost of power,” said Sharad Mahendra, whole-time director and chief operating officer of JSW Energy.

The move is unlikely to impact any private power producer negatively. The all-India plant load factor (plf) for thermal plants in May was 63.24 per cent. Mahendra added that phasing out will add to the thermal demand growth that India is witnessing.

In addition to retirement of old plants, higher utilisation of gas-based power plants will also help resolve debt stress to the tune of Rs 1 trillion, industry estimates suggest.

“The country is trying to retire inefficient old coal-based thermal plants and a dispensation for better utilisation of 24 Gw of under-utilised gas-based power projects. These will not only have a positive impact on the financial sector, but will help India reduce its carbon footprint,” said Debasish Mishra, Partner at Deloitte Touche Tohmatsu India.

The finance minister also mentioned the possibility for tariff reforms in the sector. “Considerable reforms are needed in tariff policy. A package of power sector tariff and structural reforms will soon be announced,” she said.

On power distribution, Sitharaman added: “We will work with state governments to remove barriers such as cross subsidy surcharges, undesirable duties on open access sales, or captive generation for industrial and other bulk power consumers.”

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