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March 01, 2019

Sector Report: Power

This report is available to users in India for ₹40,000 + applicable taxes


Table of Contents


  • Summary
  • Demand
  • Capacity additions and supply
  • Deficit
  • Investments
  • Project economics
  • Distribution




Private generation capacities reeling under financial stress; effective implementation of measures a must for timely resolution


The Reserve Bank of India's February 2018 notification on Resolution of Stressed Assets - Revised Framework that mandates banks to classify debt as default in case of even one day's delay in servicing the debt has created a turmoil in the power sector, especially private sector generation capacities. As per the revised framework, projects with interest or principal overdue starting from 1 day to 30 days will be categorised as special mention accounts category - 0. The most stringent change in the framework is that all the lenders have to agree upon a resolution that has to be reached in 180 days or else approach the National Company Law Tribunal (NCLT) under the Indian Bankruptcy Code which means several stressed assets in the power sector will be restructured.


As per a report of the Parliamentary Standing Committee on Energy, 34 projects with cumulative capacity of ~40 GW are under severe financial stress due to issues related to coal supply, slow growth in power demand, delayed payments by discoms, inability of promoters to infuse equity and service debt, slower implementation of projects by developers, aggressive tariffs quoted in bidding process, regulatory and contractual dispute over power purchase agreements (PPA) as well as fuel supply arrangements, etc.


The government has also taken various steps to address stress in the power sector like fuel linkage under the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI), power procurement through aggregation of power requirement of states, rationalisation of coal price escalation index, steps to reduce cost of generation through coal linkage rationalisation and third party coal sampling, pass-through of cost of meeting environmental norms, directions to state governments to clear the discom dues to generators as per PPA terms, etc.


A high level empowered committee set up by the Government of India in July 2018 has recommended various measures such as allowing coal linkages for short-term PPAs and power to be sold through transparent bidding process, continuation of coal supply to power plants whose PPAs are terminated due to payment default by discoms so that plants can use the coal for short-term PPAs for two years or till they find another buyer of power under long/medium term PPA. The committee has also recommended procurement of bulk power by a nodal agency against pre-declared linkages to secure coal supply for generators and ensure timely payments by discoms. Other measures suggested by the committee include increase in quantity of coal for special forward e-auction for power, coal linkage allocation without bidding, determination of annual contracted quantity of linkage of coal based on efficiency of generators, retirement of old inefficient plants, etc.


However, effective implantation of the above measures is key for speedy resolution of stress in the power generation sector.