All Posts in "Venugopal Pillai"

RBI stringency on NPAs not out of place

On February 12, Reserve Bank of India (RBI) had issued guidelines that help define non-performing assets (NPAs) of banks and lending institutions. These guidelines also put a question mark on around 40,000 mw of power generation projects that are stuck for various reasons. According to the guidelines, power producers are expected to come out with a resolution plan for their stressed projects, within a time frame of 180 days. Failing this, insolvency proceedings will be initiated against the defaulter, which is to say, the power producers.

It is estimated that around 40,000 mw of thermal (mainly coal) power projects are stuck due to inability of finance. This, in turn, is the result of developers not being able to secure coal linkages, sign power purchase agreements, etc. Power producers have of course appealed against the RBI directive and the matter is still pending final resolution.

The question now is what should be the best way to resolve the long-pending matter. If one sees this from a very clinical point of view, there had to be a time-bound measure from RBI because the case of stressed power generation projects has been going on for years on end. Power producers have cited on reason or the other, explaining why their projects were not moving ahead. Lending institutions are also stuck with over Rs.1.5 lakh crore in the form of bad loans. This makes further lending difficult and lends a tag of “non-bankability” to the power sector, at large.

One way to resolve the issue is to take up the stressed projects, on a case to case basis, and devise a bespoke solution. This approach is tenable as every stressed project has its unique fingerprint of difficulties. While some projects are stuck for want of coal linkages, others are stuck for inability to stitch up long-term PPAs.

Having said this, the approach of RBI must also be understood. The apex bank believes that promoters do have the scope to resolve their projects in a time-bound manner. If no resolution is arrived at, it is only befitting that projects be consigned to insolvency-related proceedings.

The bigger point is that the power ministry has targeted to add over 90,000 mw of new power generation capacity in the next 5-7 years. Given this, it is but logical that every effort be put in resolving the 40,000 mw of stressed capacity, and that too, as a time-bound exercise. The RBI’s stance of initiating insolvency-related proceedings after the 180-day deadline is therefore not out of place.

Venugopal Pillai by — August 14, 2018 in Electricity 0
Smart meter procurement drive chugging along

Energy Efficiency Services Ltd (EESL) is progressing with its smart meter procurement drive. EESL, a five-way joint venture with power ministry PSUs, recently announced that it will be procuring 1 million smart meters to be deployed in Haryana. Agreements have been entered into with two discoms — Uttar Haryana Bijli Vitran Nigam (UHBVN) and Dakshin Haryana Bijli Vitran Nigam (DHBVN). The initial cost of the project will be borne by EESL and its payback would be made through monetization of commercial efficiency from the use of meters. EESL is expected to float tenders for the smart meters and for the system integrator in the coming weeks.

According to information available, EESL has floated three major tenders so far for procurement of energy meters. In March 2018, a tender for 5 million smart meters to be deployed on pan-India basis was floated and the finalization is under process.

In December 2017, a mega tender for 10 million prepaid meters was floated. These meters are to be deployed in Uttar Pradesh, a state with ATC losses way above the national average. This tender was recently formalized, according to very reliable sources, though there is no official communication from EESL.

The very first tender by EESL was in July 2017 where 5 million GPRS-based smart meters were procured for deployment in Uttar Pradesh (4 million units) and Haryana (1 million units).

Speaking of the 10 million prepaid meter tender for Uttar Pradesh, it is learnt that 5 million would be supplied by Larsen & Toubro, 3 million by Genus Power Infrastructures and 2 million by Delhi-based Allied Engineering Works Pvt Ltd. It is encouraging to observe that the allocation of this mega tender was quite “clean” unlike the July 2017 tender that generated a fair amount of controversy.

The strange outcome of reverse bidding

EESL’s first tender for 5 million GPRS-based smart meters, floated in July 2017, saw an interesting but strange turn of events. When the bids were opened, Larsen & Toubro emerged as the L1 bidder. However, when the reverse auction (as provided for in the tendering process) was carried out, Central PSU ITI Ltd (formerly Indian Telephone Industries) outbid L&T with a quote that was 8 per cent lower. The remaining qualified bidders were asked to match the best price quoted by ITI, and finally the contract for 5 million smart meters was divided amongst four suppliers—ITI (2.5 million units), Genus Power Infrastructures (1.35 million units), Karnataka State Electronics (0.9 million units) and ZenMeter Solutions (0.25 million). The total cost of procurement worked out to Rs.1,680 crore. The contract for system integration, valued at around Rs.1,020 crore was placed on Larsen & Toubro.

What is intriguing and perhaps disconcerting is that two of these suppliers – ITI and Karnataka State Electronics (or KEONICS) do not have prior experience in manufacturing energy meters. Though no official communication was available from procurement agency EESL, it is reliably that ITI would be outsourcing its order to Hyderabad-based JnJ Power Systems Ltd and to China-based Shijiazhuang Kelin Electric Co Ltd. KEONICS would be fulfilling its 0.9 million meter order through Flash Electronics (India). The question also arises as to how ITI and KEONICS, with no prior experience in the manufacture of energy meters, were considered eligible for the bidding process.

What is really disappointing is despite having reputed domestic manufacturers of energy meter business, a part of the tender will be fulfilled through Chinese equipment. This quite militates against the cherished “Make in India” philosophy.

The author, Venugopal Pillai, is Editor, T&D India and may be reached on venugopal.pillai@tndindia.com. Views expressed in this article are personal.

Venugopal Pillai by — July 14, 2018 in Electricity 0
Performing asset, non-performing loan

The financial results for FY18 of two leading lending institutions—Power Finance Corporation (REC) and Rural Electrification Corporation (REC)—were recently announced. As expected, concerns were expected on the loan asset portfolio with respect to non-performing assets (NPAs), especially in the wake of the February 12, 2018 guidelines of Reserve Bank of India. These guidelines aim at making NPA classification more stringent with a view to mitigating the overall incidence of bad loans.

Though PFC and REC are non-banking finance companies (NBFCs) and the guidelines do not strictly apply to them, both, as a matter of prudence, made provisions for NPAs, as per the new guidelines. As both the institutions have significant exposure in the power generation space—a sector of which analysts are not too optimistic—there would naturally be questions about the asset quality.

With the way India’s power demand is likely to rise in the coming years, a power plant can never be a non-performing asset.

While it is true that the power generation sector is going through a placid phase, it is important to realize that prospects are not too bleak. The government has tried to revive stranded private power generation assets, by a two-pronged approach. Under the scheme “Shakti,” an attempt was made to provide coal to power generation assets without a fuel supply agreement. Several IPPs have benefited from this scheme. Now, there is another scheme underway that seeks to procure buy power from private power projects that do not have firm power purchase agreements (PPAs). Called Medium Term PPA Scheme, this program, in its first round, hopes to sew up purchase agreements for 2,500 mw of capacity, for a three-year period. Going by reports, the response to the pre-bid meeting was impressive and there is a feeling that the scheme should be able to formalize the said PPAs, by mid-July 2018.

While power generation is not discussed with the same enthusiasm as it was a decade ago, power demand is poised to grow in the coming years. The Saubhagya scheme, launched in October 2017, has targeted complete national household electrification by April 2019.  REC, which is the nodal agency for Saubhagya, has stated that currently as many as 1 lakh households are getting electrified today, on a daily basis. Saubhagya is expected to create an additional demand of 28,000 mw.

For a lending agency, a stressed power generation plant is a non-performing asset. However, with the way India’s power demand is likely to rise in the coming years, a power plant can never be a non-performing asset. A power generation plant will always be a “performer”; it is only the loan that could be “non-performing”!

This article’s author, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be contacted on venugopal.pillai@tndindia.com)

Venugopal Pillai by — June 9, 2018 in Electricity 0
Bihar: Too much reliance on Central government

Last week, NTPC announced that it has taken over a stressed power generation plant owned by the Bihar state government. The Central utility also announced that it has acquired full control of two joint ventures, in which Bihar government had equity stake. The two joint ventures are Nabinagar Power Generating Company Pvt Ltd and Kanti Bijli Utpadan Nigam Ltd.

Venugopal Pillai by — May 19, 2018 in Electricity 0
Bihar should pursue JVs with private sector

Recently, Bihar Grid Company Ltd (BGCL) was in the news when lending agency Power Finance Corporation sanctioned financial assistance worth Rs.1,350 crore, representing the entire debt component of a Rs.1,688-crore transmission upgrade scheme. The project aims at constructing 16 transmission lines, four associated substations and seven line-bay extension works in the eastern state.

Venugopal Pillai by — February 15, 2018 in Electricity 0
Should India pursue manufacturing of solar equipment?

India’s solar sector is riding on a wave of optimism. The auction mechanism is working and tariffs are getting more and more competitive. The much talked about “grid parity” has since long been realized. Even tariffs of less than Rs.2.50 per kwh no longer raise eyebrows. Though India currently has around 16 GW of grid-connected capacity, which is far less than the targeted 100 GW by 2022, there is a plan in place that gives a feeling that we are indeed working towards a goal and not merely wishing things to happen. In the next two years, the plant to auction as much as 80 GW has been formulated and government appears resolute in its implementation plan.

Venugopal Pillai by — December 18, 2017 in Renewable Energy 0
Wind auctions to help attain targeted capacity

The introduction of tariff-based bidding appears to have vivified the wind energy sector that was getting much lesser attention than solar in recent years. With two successful auctions by Solar Energy Corporation of India, the government is now confident that SECI auctions will help take the country realize its wind capacity targets.

In a very recent development, the Centre has announced its plans to conduct auction of a total of 20 GW of wind energy capacity,  equally spread over two years, FY19 and FY20. Combined with an estimated 8 GW of auctions during the current year (FY18), these auctions will help attain the targeted wind energy capacity of 60 GW by 2022.

Nodal agency Solar Energy Corporation of India (SECI) has initiated its third wind energy auction. The scheme expects to set up capacity worth 2,000 mw through wind projects connected through the interstate transmission system (ISTS). This will help non-windy states honour their non-solar renewable purchase obligation (RPO). According to the tender documents, each participant will be allowed to bid for a minimum of 50 mw and a maximum of 400 mw. The developer will set up its wind project on BOO (build, own and operate) basis without any financial assistance from the Centre. The power purchase agreement will be entered with power distribution companies, for a duration of 25 years.

A total of 5 GW of wind capacity has been auctioned during the current fiscal year so far. In all, 8 GW is likely to be auctioned this year, followed by 10 GW each in the next two fiscals.

In the first auction conducted by SECI in FY17, PPAs for 1,000 mw of capacity were signed for a tariff of Rs.3.46 per kwh. The second auction, concluded in October this year, saw tariffs fall to a further 2.64 per kwh. In this auction, developers setting up plants in Gujarat, Tamil Nadu and Madhya Pradesh will be selling wind energy to non-windy states like Uttar Pradesh, Bihar, Jharkhand, Assam, Punjab, Goa and Odisha. The total capacity envisaged in the second auction was 1,000 mw.

The winners of the second auction include Renew Power (250 mw at Rs.2.64 per kwh), Orange (200 mw at Rs.2.64 per kwh), Inox (250 mw at Rs.2.65 per kwh), Green Infra (250 mw at Rs.2.65 per kwh) and Adani Green (50 mw at Rs.2.65 per kwh).

Including the third auction of SECI, a total of 5 GW has been auctioned in FY18 so far. Another 1.5-2.0 GW is expected to be auctioned in January 2018 followed by 1.5-2.0 GW. This makes a total of at least 8 GW of wind energy auctions in FY18. As discussed earlier, 20 GW of auctions will be held in FY19 and FY20, making a total of 28 GW.

India’s current wind energy capacity stands at 32 GW. With 28 GW of auctions to be conducted by March 2020, and allowing two years for commissioning, India appears to be on track to have 60 GW of wind energy capacity by 2022.

The official target for renewable energy is 175 GW by 2020, out of which 100 GW will come from solar, 60 GW from wind and 15 GW from other sources like small hydropower, biomass, waste-to-energy, etc. The government is confident of surpassing the 175-GW renewable energy target by at least 10 GW that will come from non-traditional sources like floating solar power plants over dams, offshore wind energy systems and hybrid wind-solar projects. Studies have been initiated to explore the possibility of installing floating solar power plants on the Bhakra Nangal dam in Himachal Pradesh. Coastal sites in Gujarat and Tamil Nadu are also being investigated for offshore wind power projects.

(This article’s author, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be contacted on venugopal.pillai@tndindia.com)

Also See: Tariff-based bidding a game changer for the wind industry

Venugopal Pillai by — November 30, 2017 in Renewable Energy 0