Thermal Power projects to hit roadblock, UPERC restricts to ink new PPA till 2022-end

The Uttar Pradesh Electricity Regulatory Commission (UPERC) has barred state electricity distribution companies from signing any long-term power purchase agreements (PPAs) with coal-based thermal power plants till December 2022. The latest move by the regulatory authority will be a major setback for thermal power projects in the state.

UPERC noted that the Uttar Pradesh Power Corporation (UPPCL) and state distribution companies had already contracted for sufficient thermal power with coal-fired power plants to meet projected demand till 2026-27.

It was also noted that UPPCL and discoms can procure short-term seasonal peak power from energy exchanges, the Centre or through bilateral banking arrangement with discoms in other states. Since the government is moving towards green energy footprint, the discoms can also enter into new PPAs with renewable energy-based power companies, including hydro power projects.

Apart from this, it was suggested that the discoms can invest in power storage technologies to meet the spurts of peak demand which lasts only for short duration.

The demand for short-term power market is gaining traction since the count of stressed thermal power assets has gone up in recent years. The short-term power trade, especially power exchanges, has come in handy to meet the sudden rise in peak demand owing to their flexibility and ready availability. The share of the short-term market, made up by energy exchanges, bilateral trade and unscheduled interchanges, grew from 6.1 percent in FY09 to 11.7 percent in FY19.

The Economic Survey 2016-17 highlighted that the Stressed /Non-Performing Assets (NPA) in the power sector, especially in thermal, had grown significantly. The survey stated that companies were not gaining enough returns to pay interest on loans from banks, thus leading to NPAs. As a result, companies were unwilling to invest in new capacities, and banks were resisting to lend loans.

The Standing Committee under the Ministry of Power examined the Stressed /NPA in the electricity sector and listed 34 stressed coal-based thermal power plants with a total capacity of 40,130 MW, entailing an investment of Rs 2,26,377 crore.

Currently, the average power demand of the state of Uttar Pradesh is 13,000 MW and during peak hours, demand rises to 22,000 MW. The state’s contracted PPA capacity is around 18,134 MW, of which 14,161 MW is thermal, 3,016 MW hydro and 958 MW renewable. Except for few peak hour demand, most of the tied-up thermal power capacity remain underutilised.

Moreover, at present it is mandatory for discoms to pay PPA-equipped generation units the capacity charge, around 45 percent of the tariff, even if there is no utilisation of the power. This will result in additional cost which might go up to Rs 10,750 crore in FY23.

As per data compiled by Projects Today, there are eight upcoming thermal power projects in the state of Uttar Pradesh with an investment to the tune of Rs 52,897 crore. The projects will add up 4,820 MW in the state.

The Commission will review energy capacity, energy demand and availability status in December 2022 to reassess the need for any long term PPAs with coal-based thermal power plant, keeping in view 54 months gestation period required for projects.

Also, a memorandum has been submitted to Uttar Pradesh Energy Minister Shrikant Sharma for reviewing the PPAs signed with private power producers. The government is mulling to review PPAs to bring down electricity tariffs in the state. It has been noted that several private thermal power plants, which had been set up in the state under the memorandum of understanding (MoU) route, were supplying power at high cost to state utilities.