Progress on stressed thermal asset resolution remains slow with only 10%


Resolution of stressed thermal assets remain slow despite various measures undertaken by the government and lenders, with only about 10% of the 40 GW stressed coal-based capacity achieving resolution, mainly through acquisition by a new sponsor, analyst firm ICRA.

In a report on the sector, ICRA said that the balance capacity is under various stages of resolution, including Insolvency and Bankruptcy Code (IBC). However, resolution of 12 GW gas-based capacity continues to remain uncertain, given the inadequate availability of domestic gas and the absence of any policy measures for the use of imported R-LNG with subsidy support as well as the measures to incentivize such projects to meet the peaking / ancillary power demand. 

“The progress on stressed asset resolution remains slow because of the time taken to achieve resolution, regulatory challenges in securing approvals for projects with existing competitively bid-based power purchase agreements (PPAs), still limited progress in signing of new long-term PPAs and subdued thermal capacity utilization levels,” said Girish Kumar Kadam, sector head & vice president at ICRA Ratings. “Also, improvement in discoms’ financial position remained lower than expected, which can hamper the sustainability of demand growth and signing of new long-term PPAs” 

In one such instance, the Uttar Pradesh Electricity Regulatory Commission issued a tariff order in case of a stressed asset which had been subject to partial debt write-down, directing the acquiring entity to offer tariff discount under the existing PPA. However, this particular order has now been set aside by the Appellate Tribunal for Electricity (APTEL). 

Electricity demand growth slow down to 4.4% in the first six months of FY2020, from 6.0% growth witnessed in the corresponding previous period. The slowdown in electricity demand was primarily witnessed in the months of August 2019 and September 2019, despite a healthy growth of 7.4% in Q1 FY2020. 

The decline in capacity utilisation of thermal power plants is a reversal of improvement witnessed over the past two years. The decline was sharpest for the central sector coal utilities from 70.8% in 6M FY2019 to 64.2% in 6M FY2020. 

Referred from economic times