 Power sector fails to live up to the expectations in 2017; year-ahead to bank on plan implementations For the Power sector, the year 2017 has been a mixed bag where the thermal and wind segment under-performed the expectations while the solar sector did comparatively better. In the six months to October 31 of 2017 total power generation including conventional and non-conventional power rose a meagre 1.3% to 331,881 MW. Thermal power (Coal and Gas) contributed the maximum at 219,415 MW, while contribution of coal based generation stood at 193,427 MW, Gas based generation at 25,150 MW and oil based generation at 838 MW. For the period between April1 to October 31 2017, other renewables generation that includes wind, solar, bio-mass (excluding hydro) stood at 60,158 MW an increase of 5.06%, while the growth in nuclear power generation remained constant as no addition was made in capacity, hydro power generation for the period grew by 0.64% to 44,765 MW. On the transmission front, according to the Ministry of Power website, the country has added around 13,820 circuit kilometers of transmission lines as of November 30, FY18 taking the total installed capacity to 381,671 circuit kilometers. The total substations capacity has also increased by 50,805 MVA/MW to 791,570 MVA/MW as of November 30, FY18.
The total capacity added in renewables –Solar and Wind – in the first six months of FY18 stood at 2,900 MW, primarily led by the solar power segment. The wind segment witnessed a slowdown in capacity in FY18 given the ongoing transition from feed-in tariff based projects to competitive bid-based auctions. It needs to be mentioned that the government has shifted its focus to auctioning of wind capacities at the national level as against feed-in-tariffs determined by state regulatory commissions. The passing of new bidding guidelines for wind projects will help states to invite tenders which was earlier not possible without the guidelines. The idea is to arrive at market determined tariffs for projects as against usually high regulated prices of Rs 6-7/kWh determined by state regulatory commissions.
Year 2017 also witnessed drop in tariffs for both the solar and wind power projects to an all time low of 2.44/kWh at the Bhadla Phase III project in Rajasthan for the solar projects, and to Rs 2.43/kWh for wind at the recent Gujarat auctioning of wind capacities. The drop in competitive tariffs have also acted in reducing around 60,000 MW of thermal projects as stressed assets for Banks. Discoms have preferred to purchase in the spot market and on exchanges where the average rate is around Rs 2.9/kWh, and have even refused to sign power purchase agreements for projects that were awarded at much higher rates.
These drop in tariffs have also impacted the developers who bid aggressively for projects as they found it difficult to achieve financial closure for projects. Projects where bids were lower than Rs 3.5/kWh in the solar sector given the increase in panel prices by 15% in the last six months, it is estimated the internal rate of returns for these projects would fall to less than 10%. For wind projects with bids at Rs 2.64 and below, the IRR is expected to drop to 8-9%. For more on this story and to get your company featured, subscribe to our brand new print edition - TradeBriefs SME. For distribution enquiries , please email us at sme@tradebriefs.com or call 9930577889.
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