The Economic Survey 2017 tabled in Parliament by Finance Minster Arun Jaitley on Tuesdaynoted that private firms are reeling under cost-overrun pressure and “exceptionally low” plant load factor’s (PLF’s) and tariffs in the short-term market are not likely to rise in the near term.These two factors, the Survey said, were hurting the profitability of private power producers.
Higher cash flows are important for any company to service debts and interest obligations. Low profits reduces the pay back capacity of a power producer.
“There is scant sign on the horizon that PLFs and tariffs might improve,” the survey said.
PLF indicates the performance of a power plant in terms of its generation capacity vis a vis its actual generation. Low PLFs mean that the plant is generating less power than what it is capable of generating. A 100 mw power plant running at 60% PLF means that it is producing 60 mw power as against its actual capacity of 100 mw.
As per the survey, PLF — actual electricity production as a share of capacity– tumbled to just 59.6 per cent during April-December 2016 from 62 per cent during the same period last year.
Commenting on the falling merchant tariffs, the Survey said, “Meanwhile, merchant tariffs for electricity purchased in the spot market have slid to around Rs 2.5/kwh, far below the breakeven rate of Rs 4/kwh needed for most plants, let alone the Rs 8/kwh needed in some cases.”
The Survey said the setbacks have led to cost overruns at the new private power plants of more than 50% in nearly every case, and much more than that in many.
“To cover these costs, these companies need to sell all the power they are capable of producing at high tariff rates. But the opposite is happening,” it said.
It further said while much electricity is being sold at higher long-term rates under power purchase Agreements (PPAs), in some of these cases even these rates remain below costs and the share of electricity purchased under PPAs is falling, as state electricity boards increasingly rely on the cheap and abundant power available in the spot market.
“Note that if there had not been cost overruns, a tariff of Rs 3/kwh would have been sufficient to ensure profitability for most new plants,” the survey said.
Image Credits: Financialexpress.com
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