Study finds eight coal-fired thermal plants in India stranded liabilities, recommends acquisition by NTPC

India has eight stranded coal-based thermal power plants, as of April 2023, according to an analysis by the Institute for Energy Economics and Financial Analysis (IEEFA). Stranded assets are ones no longer used or where operations may have stalled and may end up as a liability. 

The Union Ministry of Power had deemed 34 plants as “stressed” in March 2018. Half of the stranded coal-fed thermal power station projects — 17 — have either been resolved or are expected to be resolved, a 2021 report by the  30th Parliamentary Committee previously said. 

“Missing fuel linkage, absence of power purchase agreements and the inability of private promoters to bring in fresh capital are the three main reasons for the power sector’s non-performing assets (NPA),” Shantanu Srivastava, the study’s author and sustainable finance and climate risk lead at IEEFA South Asia, told Down To Earth (DTE).

“Some of these coal-fed thermal power stations also became stranded because the promoters did not have the credibility, financial capability and technical expertise to run these plants,” Srivastava added.

“For instance, an National Thermal Power Cooperation Ltd (NTPC) has the significant experience, financial strength and ability to provide coal linkages to make sure it turns around a stranded asset,” he further said. 

The government asked NTPC to add seven gigawatts to meet the country’s increasing power demand, business news website Moneycontrol reported last year. The study, therefore, recommended NTPC use stranded power plants instead that lie unused without takers. 

These plants “will better serve India’s short-term energy security needs than investing in new ones,” the study reasoned.

“We propose an acquire-retire-repurpose model, wherein companies like NTPC, India’s largest power producer, can buy stranded thermal plants to meet the short-term needs of the country, retire the plants and repurpose them for renewable energy generation to keep their environmental, social and governance (ESG) profiles intact,” the paper read. 

The paper recommended that “the newly formed Power Finance Corporation (PFC)-REC joint venture, PFC Projects Limited (PPL) and India’s bad bank, the National Asset Reconstruction Company Limited (NARCL), can make these acquisitions through partnerships.”

A set of six stressed power sector assets with a combined capacity of 6.1 GW were identified by the report. These are: Lanco Amarkantak (600 megawatts), KSK Mahanadi (1800 MW), Rattan Indian Nashik (1350 MW), GVK Goindwal Sahib (540 MW), Mutiara Coastal Energen (1200 MW), and SKS Power Generation (600 MW).

“PFC is the lead lender for the first three, which will ease the resolution. NARCL has been mandated by the central government to resolve the last set of remaining NPAs. So it is under their remit to resolve power sector NPAs,” Srivastava said.

The idea to acquire the six stranded assets by NTPC makes sense, said Nivit Yadav, programme director of the Industrial Pollution Unit at the Delhi-based think tank Centre for Science and Environment.

“Almost all of the plants mentioned above are less than 10 years old and many of them are supercritical. Such acquisitions will have a huge positive environmental impact and will also help banks overcome their NPAs,” Yadav told DTE.

“It makes financial and environmental sense to use stranded thermal assets to provide for India’s short-term power needs. Any new thermal asset risks becoming stranded in the future as RE proliferation on the grid increases as the latter integrated with storage becomes more economical,” Srivastava added.

“NTPC aims to install 60 GW of renewable energy capacity by 2030, which would require securing capital from global ESG investors,” Srivastava said. “Secondly, with currently stranded assets, the financial outlay to make them work will be much less compared to putting up new plants.”

The analysis revealed that in April 2023, “26 of these stressed assets had been resolved fully or partially, with strategic buyers acquiring 11 of these plants.”

A strategic buyer helps acquire old plants, Srivastava told DTE. “In the financial markets, a strategic investor can vertically or horizontally integrate an acquired business into their own,” he said. 

For instance, a strategic buyer for a stranded thermal plant will operationalise the plant and not sell it for scrap, whereas a financial buyer might not be looking to reboot it or may not have the expertise to run the plant, he added.

After the cancellation of 204 coal mines by the Supreme Court in 2014, many power projects were left idle and stranded without arrangements for adequate fuel supply. 

In addition, many projects were set up without strong coal linkage, leading to a high cost of generation, a parliamentary report said.

On March 4, 2015, the Coal Mines (Special Provisions) Bill was passed and enabled the allocation of coal mines that were cancelled the previous year.

In 2017, the Ministry of Power introduced a coal-linkage policy called Scheme to Harness and Allocate Koyla Transparently in India, or SHAKTI, which allowed coal auctions to provide fuel supply to stranded coal plants.

According to one study, a total of 20 thermal plants are now being built with a combined capacity of 27.4 GW, which will likely be included in the national capacity by the end of 2027–2028.

They include 39 units, of which Uttar Pradesh has the highest — 10 units. Tamil Nadu, Telangana and Jharkhand have seven, seven and five units, respectively, the study said.

Subscribe to Daily Newsletter :

SUPPORT US

We are a voice to you; you have been a support to us. Together we build journalism that is independent, credible and fearless. You can further help us by making a donation. This will mean a lot for our ability to bring you news, perspectives and analysis from the ground so that we can make change together.