India launches scheme to auction PPAs linked with coal supplies

GlobalData Healthcare 28 June 2019 (Last Updated June 28th, 2019 16:00)

The Government of India has announced that it is ready with a scheme to auction power purchase agreements linked with coal supplies from Coal India Limited.

India launches scheme to auction PPAs linked with coal supplies

The Government of India has announced that it is ready with a scheme to auction power purchase agreements (PPAs) linked with coal supplies from Coal India Limited (CIL). This auction would be for short-term PPAs with coal supplies. This would help around 10GW of power plants that are currently idle due to lack of fuel supply or a PPA contract.

In the proposed auction scheme the bidders will be informed in advance about the availability of coal supply from the various CIL subsidiaries and mines. Depending on these inputs, tariff-based competitive bids would be invited from interested companies. The bids will be invited for 2,500MW of power supply capacity for three years. The proposal is the country’s third consecutive scheme associated with auctioning of PPAs but this would be the first time that PPAs are associated with coal supplies. CIL is likely to allocate 12 million tonnes as its annual commitment for the scheme.

The Ministry of Power kicked off the PPA scheme in first half of 2018. It was introduced to help salvage stressed assets lying idle due to lack of power offtake agreements. The pilot scheme was launched in April 2018, where 1.9GW of stressed assets were awarded with power offtake agreements at a price of INR4.24 (US$0.061) per unit. Seven projects won the power purchase contracts in the pilot scheme. The winners include projects of RKM Powergen, Jhabua Power Ltd, MB Power Ltd, SKS Power, Jindal India Thermal Power Ltd, IL&FS Energy and JP Nigrie.

The second round of auctions for procurement of 2.5GW from operational coal-based power projects without PPA for three years was based on the reverse e-bid format under which the power producers have to lower tariffs in the online auctions. The tariffs were linked to inflation, which unlike the first round, was fixed for three years. Fifteen power plants participated in the auction to have PPAs with the states. NHPC Limited, which was the PPA aggregator for the second round, is in talks with various states to purchase power from qualified bidders. The aggregator will sign PPAs with the winning bidders and power sale agreements (PSAs) with state distribution utilities. Jindal Power made a bid to supply 515MW from its two plants in Chhattisgarh at INR4.41 (US$0.064) per unit.

The first auction did not witness full subscription to the offered capacity of 2.5GW due to the lower tariff, along with the absence of fixed charges and non-escalating tariffs. However, the second scheme is more attractive for the developers, with the presence of indexation of variable charges. The two schemes together have tied up 4.4 GW of operational coal based capacity against 15-16 GW which are looking for long term PPAs.

With more than 10GW of operational coal-based power plants still sitting idle due to lack of fuel supply or PPA contract, the third scheme would slightly bridge the gap and lower the number of stressed assets in the market. The government further has to introduce a series of such schemes so that the developers have clarity on long-term PPAs and Fuel Supply Agreements (FSAs) which in turn will help them to channel their investments and reduce the number of stressed assets.