The Cabinet has given approval for grant of coal linkage for short-term power purchase agreements (PPAs)
The Union Cabinet on Thursday approved a plan to revive some of the stressed thermal power plants as per the recommendations of a group of ministers (GoM), a move power sector experts said should have come a long time ago.
The Cabinet has given approval for grant of coal linkage for short-term power purchase agreements (PPAs), allowing existing coal linkage to be used in the case of termination of PPAs due to payment default by distribution companies and procurement of bulk power by a modal agency against pre-declared linkages. The central/state generation companies can now act as power aggregators.
The government also cleared investment proposals worth over Rs 31,560 crore in power projects, including two coal-based thermal plants and a hydro power project.
Ashok Khurana, director general, Association of Power Producers, told DNA Money, "The Cabinet decision provides necessary flexibility in coal usage and would benefit about 6,000 to 8,000 mw which has coal linkage but no PPA. They can now use coal linkage for supplying short-term power. Non-termination of coal linkage in case of termination by discoms gives some leeway to developers to stop supplying in case of a prolonged period of payment default.'' He said coal linkage quantity linked to efficiency would help produce more power with the same quantity of coal.
However, Harry Dhaul, director general, Independent Power Producers Association of India said that although the Cabinet's decision is a step towards resolving major issues in the power sector it is rather late in the day. ''The government should have taken these steps a long time ago when the power sector was desperately in need of support. This will have a positive effect in the coming times and give huge relief to the power sector which is under stress,'' he said.
According to Deloitte Touche Tohmatsu in India leader (energy, resources and industrial products) Debasish Mishra, a slowdown in demand in the last few years and subsequent lack of long-term power procurement by distribution utilities have been one of the biggest contributors to the stress in the power sector. ''When the demand growth is coming back, utilities are opting for short- and medium-term contracts. Given this, today's Cabinet decision to facilitate coal linkage for independent power producers holding short-term contract is very useful," Mishra said.
Icra spokesperson Girishkumar Kadam said the domestic coal availability improvement remains extremely critical for the power sector, given the growing energy demand and more requirements of linkage coal expected both for short-term sale of power as well as from aggregator PSU in case of power sourcing from the stranded assets.
''Further, the proposal of procurement of bulk power by the nodal agency against the pre-declared linkages is favourable for the IPPs, given that the same mitigates the fuel supply risk. However, the timely signing of power sale agreements by the interested discoms with the nodal agency remains important,'' Kadam said.
CHARGING UP
- The Cabinet has given approval for grant of coal linkage for short-term power purchase agreements (PPAs)
- It allowed existing coal linkage to be used in the case of termination of PPAs due to payment default by distribution companies
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