The Reserve Bank of India (RBI) has recently recommended stricter norms for non-performing assets (NPAs) recognition by banks. This has stoked fears that operational power plants totalling more than 40GW (Gigawatt) capacity and owing more than Rs 1.5 lakh crore to financial institutions can slip into the NPA bucket. More worryingly, these plants, coupled with the 50GW power capacity in the pipeline, are pointing at 45% excess capacity in India’s coal-based power industry. This, and the government’s ambitious renewable energy push, may accelerate some of these plants’ slump towards structural unviability unless fundamental and holistic reforms are initiated urgently.
Problems for the power sector had started 7-8 years ago, largely as a coal availability issue, but these have, over the last 4-5 years, turned into more of a demand-supply situation. PLF (or plant load factor, effectively the capacity utilisation of a power plant) has drifted below 60%—from the healthier 75% levels that existed in FY2010. This can be ascribed largely to the widening gap between demand and capacity. Read More