Bleak revival prospects for 21 GW stressed assets

Crisil Research believes a large proportion of coal-based power generation capacities in the private sector, stressed due to multiple factors, will remain in duress for a long time despite a raft of alleviation measures from the government.

As of August 2017, about 21 GW of commissioned private sector coal based capacities were under stress for lack of long-term power purchase agreements (PPAs) or because of poor / no offtake. With demand growth expected to remain tepid, the outlook for these capacities is bleak for at least next few years.

In addition, a large number of plants – adding up to ~35 GW capacity – are smarting due to issues such as lack of fuel supply agreement or coal linkage, unviable tariffs due to increase in cost of imported coal, project cost overrun due to delay in commissioning, and high receivables due to weak financial condition of procurers (state power distribution companies or discoms).

While the government's SHAKTI and UDAY schemes are expected to alleviate stress related to fuel supply and delayed payments, finding offtake will be a huge challenge.

At an all India level, demand for power is estimated to remain tepid at ~6% over FY18-22 owing to reducing electricity intensity in GDP, rising efficiency and reducing technical losses.

Says Prasad Koparkar, senior director, Crisil Research, ''Getting Discoms to sign new long-term PPAs that ensure stable offtake is going to be challenging. Adequate quantum of power tied-up under already signed PPAs, expected tepid power demand growth, likely migration of high tariff paying industrial and commercial consumers to open access and availability of low-priced power in short-term market would imply few new PPAs in the near term. We do not expect discoms of major states such as Maharashtra, Gujarat, Tamil Nadu and Madhya Pradesh to sign fresh long-term PPAs before 2020 based on demand projections in tariff filings.''

To add to the woes of coal-based power producers, renewable energy capacities are being commissioned at a scorching pace, adding to the surplus. This will also result in higher operating costs for coal based plants due to frequent cycling to balance demand thereby putting further strain on their finances.

All this means the plants' debt service obligation will suffer, and thereby impact lenders.

Says Rahul Prithiani, Director, CRISIL Research: ''Buyers are not showing interest in acquiring stressed assets due to the absence of firm power offtake agreements. Thus, very deep haircut or write-down may be required, for such assets to become viable. Consequently, we believe consolidation in the sector will be slow"