PSU PRESS RELEASE
How solar energy and power markets are unsettling the thermal sector
New delhi. As India’s renewable energy strategy unfolds, the thermal power sector’s stable long-term power purchasing agreements, or PPAs, are coming under threat.
Data compiled by Religare Capital Markets Ltd shows that long-term PPAs, spanning more than 25 years, were all signed by solar power firms in 2015-16 and in the first quarter of the current fiscal year. Thermal or coal-based plants were given only short- to medium-term contracts. That is a remarkable change for the sector, which currently constitutes almost 70% of India’s installed capacity.
A combination of factors is at work. The central government’s push for renewable energy capacity addition and the states’ obligation to include solar in their energy basket is driving long-term contracts to solar. For these projects to be viable at competitive rates, they require the certainty of long-term contracts. Otherwise state power distribution companies (discoms), given their weak financial position, would be less inclined to buy relatively expensive solar power (compared with thermal), said a Religare Capital analyst.
Even then, if discoms were to plan their peak load requirement, 25 states may need to sign 39,000 megawatts of PPAs by 2019 -20, pointed out Motilal Oswal Securities Ltd.
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