Gencos with captive coal may have to sign PPAs to sell power

Merchant power plants based on captive coal might soon feel the pressure to enter into power purchase agreements (PPAs) for selling electricity as states return to market for power procurement through the tariff bidding route.

Companies such as Jindal Power, which are selling cheaper power generated from captive coal in the free market, have so far dodged compliance with the coal ministry's directive to sign PPAs by citing lack of tender for power purchase by states.

After a gap of about two years, Uttar Pradesh and Rajasthan have come to the market to buy power. The two states recently invited bids for procurement of 500 MW and 1,000 MW power, respectively, under the Case I basis (where the power seller has to arrange fuel and other physical inputs on its own).

Other states might follow suit, sources said.

States have been waiting for revised guidelines from the Union power ministry pending which they have put their electricity purchase plans on hold. The ministry decided to review the existing guidelines after several projects defaulted on their power supply contracts due to fuel shortage. However, the shortage of power has forced states to return to the market even though guidelines are yet to be finalised.

"States can use the existing guidelines to source power, pending finalisation of revised guidelines," Union power secretary P Uma Shankar told FE.

Jindal, which is running a 1,000-MW power plant in Chhattisgarh, based on captive coal, has been making hefty profits by selling power in the open market. In April-June quarter, Jindal Power earned a net profit of R314.39 crore on revenues of R750.45 crore, which translates into a profit margin of 41%. During the same period, NTPC's profit margin stood at 15%, which is close to the industry norm.

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