Covid-19 to further paralyse cash flow, coal supply chain of power units

Thermal power units in the country are likely to ne cash-strapped as power demand continues to fall while surplus coal lies unused at their sites. Sector experts believe the double trouble is likely to stay for the coming three quarters and could hurt the supply chain from coal to power despatch.

Non-pithead power generation units (those located away from coal mines) have 34 days’ coal stock but most of them are under reserved shutdown. The average plant load factor (PLF) or operating ratio of thermal units has fallen to decade low of 58 per cent last fiscal – indicating demand glut. Reserved shutdown refers to pausing power generation in lieu of low demand.

Power demand last month fell by close to 30 per cent from the day nationwide lockdown was announced. States are now resorting to reduced power purchase and buy from cheaper units. Generation units with higher variable cost (mostly the non-pithead units) aren’t finding any takers. This includes several units of NTPC Limited, India’s largest power generator, states’ own units and privately owned units which are away from coal mine.

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Tariff of thermal power plants has two components – fixed cost which is the capital cost and variable cost which is the fuel cost. Under a long term power purchase agreement (PPA), buyers are obliged to pay the fixed cost to generators even if they do not procure power during a certain period.

Sector experts believe private units would the first to take a hit. India Ratings in its latest report on the power sector said, “NTPC Limited with better liquidity along with better access to the banking system/capital markets would tide over the situation, however liquidity of small independent power producers including renewables may see tightening post June 2020.”

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CII which has prepared a White Paper on India’s power sector has estimated, thermal power generators could face additional Rs 20,000-25,000 crore cash crunch. It has also estimated a loss of Rs 30,000-40,000 for the power distribution companies due to fall in consumption and delayed collections due to temporary suspension of offline collections, and cash crunch expected post lockdown relaxation.

“The liquidity gap may also transmit to other players in the value chain, namely conventional and renewable generators, transmission licensees and vendors/ service providers in our sector. This could impact their ability to buy fuel, meet debt service obligations and ensure seamless operations,” CII said.

Power generating units are not opting for shutting down their operations as they will end up losing their fixed cost recovery. India Ratings in its report said, the demand glut is unlikely to impact the fixed cost recovery of power plants, “as most of them are sitting on a healthy stock of coal, which allows for capacity declaration for fixed cost recovery.”

However, it further said, given the muted demand scenario and the must-run status for the hydro, renewables and nuclear power, the thermal generators would stand to suffer more.

In the coming months as liquidity crunch worsens and power demand picks up, sector executives fear most units would be unable to buy coal. “Already a lot of private units are not picking coal as they do not have surplus cash,” said a senior executive.

A K Khurana, director general of Association of Power Producers (APP), representative body of private power producers, is of the view that if liquidity crunch is not resolved in time, it sets into motion a vicious cycle and impair the entire value chain.

“Ideally liquidity should be injected at discom level as they are revenue generators. Otherwise it should be done at the fuel supply level. With correct liquidity infusion method, vicious circle can be converted to virtuous circle,” Khurana said.