KOLKATA: Coal-based capacity of 3,000-5,000 MW created by the private sector during the last 10 years at an estimated cost of ₹15,000-25,000 crore, has been reduced to near junk, thanks to prolonged idling and lack of maintenance, said sources.
India doubled its power generation capacity to 326 GW (one gigawatt is equal to 1,000 MW) between 2007 and 2017 as part of the ‘Power for All’ programme. Coal-based capacity nearly trebled to 194 GW, while gas-based capacity doubled to 25 GW.
But the capacity addition amidst slow demand growth created a large volume of stressed assets. According to a Reuters report earlier this year, over 50 coal- and gas-fired power plants were “operating at a bare minimum”.
The net result is that the power sector is the largest (12 per cent) contributor after steel (25 per cent) to the $150 billion bad debt pile of banks.
Following introduction of the insolvency and bankruptcy law, banks are paving the way for revival of stressed assets through merger and acquisitions (M&As).
However, the bankruptcy proceedings have just started and bigger defaulters are being picked up on priority basis. Meanwhile, smaller independent power producers (IPPs) are in worse shape.
According to Kameswara Rao, Partner, PwC, 4,000-5,000MW of coal-based capacity runs to meet short-term demand. Though stressed, these plants are well maintained and can find suitable buyers as and when the restructuring or insolvency proceedings begin.
However, another 3,000 MW capacity has suffered significant impairment due to prolonged idling and inadequate upkeep. Most of these plants are smaller with unit sizes varying between 220 MW and 330 MW, and are located in the coal-mining belt. One or two run on imported fuel.
In percentage terms, gas-based plants are in bigger trouble as more than half of the added capacity in the last 10 years is idling, either due to lack of gas or for want of buyers. The maintenance status of these stressed assets is not known.
Gear makers hit
Meanwhile, stress is building up in the wind power equipment industry as the order book position is near dry. India added 5,400 MW wind power capacity in 2016-17. In comparison, barely 421 MW has been added during April-September of this fiscal.
The reason for the slow growth is being attributed to confusion over auction. India held the first auction of wind projects in February this year. Encouraged by the sharp drop in wind tariff, the Centre immediately announced plans to move away from the regulator-determined feed-in tariff regime.
The intention was good. Improved competitiveness would reduce resistance from discoms to high-cost power and help government abandon the current practice of different purchase obligation for different renewable energy (RE) sources.
But the announcement was made without preparing auction guidelines and the calendar for future auctions. This stopped States from signing PPAs for projects under the feed-in tariff regime. Some States even started discussing renegotiation of old contracts.
Experts are unanimous that the transition could have been better managed.
Girishkumar Kadam Sector Head and Vice-President of ICRA, however, feels that next year would be good for gear makers as the Centre has announced plans to auction 10 GW worth of projects.
India has over 60 GW of RE capacity (excluding 44 GW large hydel), of which 32.7 GW is wind.