Scant sign that PLFs and tariffs might improve: Eco Survey

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NEW DELHI: Power plants are likely to remain underutilised and the tariffs in the short-term markets are not likely to rise in the near-term, the economic survey tabled in Parliament on Monday said.

Deteriorating cash flows and high interest outgo have led to cost overruns of more than 50% at nearly all new private power plants, and much more than that in many, the survey said.

“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,” the survey said

Plant load factors (PLF, actual electricity production as a share of capacity) are exceptionally low – and they are falling, tumbling to just 59.6% during April-December 2016 from 62% during the same period last year.
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.

“As a result, cash flow for most private power generation companies falls far short of what is needed to service their interest obligations; put another way, more than 60 percent of the debt owed by the private power producers is with IC1 companies,” it said. IC1 companies are companies with an interest coverage ratio less than 1.

“Also there is scant sign on the horizon that PLFs and tariffs might improve,” it said.