New Delhi: The powerministry’s latest scheme for procurement of power from 2,500 Megawatt (Mw) of coal-based capacity for three years from operational coal-based projects without long-term Power Purchase Agreements (PPAs) provides only a partial relief to generators, according to ratings agency ICRA.

“This is a partial relief for the Independent Power Producers (IPP) segment given the medium-term nature of the PPAs proposed and significantly large coal-based capacity i.e. about 26,000 Mw without any long term PPAs. About 60 per cent of this capacity is operational and the balance is under implementation,” said Sabyasachi Majumdar, Senior Vice President at ICRA.

Under the pilot scheme formulated by the power ministry, the power generators would be selected through a tariff-based competitive bidding process and power trader PTC India will sign the PPAs with the winning bidders and back-to-back power sale agreement with state discoms. Majumdar said the scheme is a positive development for the IPPs as it will provide visibility on PPAs, given the lack of progress in signing of long-term and medium term PPAs over the past 3-5 years.

He added that the state distribution utilities may also follow with fresh bids in a similar manner, given that the scheme appears favourable for discoms, in view of the single part nature of tariff with fixed capacity charge being kept nominal at 1 paise per unit and minimum contracted off-take at 55 per cent of contracted capacity.

The fixed charge is kept nominal and the variable tariff quoted by the power generator should cover for the entire cost of generation and supply up to the delivery point, according to ICRA. The adequacy of the bid tariff will a key factor for the viability of such PPAs given the large capital cost escalation experienced by the recently commissioned coal-based projects and rising coal price levels. Also, the distribution utilities may not be willing to procure power beyond Rs 4.0-4.5 per unit, the agency said.