A GMR Energy spokesperson told FE: “The Uttar Pradesh government bid (for 3,800 MW power) was one of the very few case 1 bids (for projects without government subsidy) in the market in recent times. (PTI)

In another setback for power plants languishing without long-term buyers, the Yogi Adityanath-led Uttar Pradesh government has cancelled the bids conducted in 2016 to procure 3,800 MW of power from independent power producers. The decision, according to sources, was taken after the central power ministry and Uttar Pradesh Power Corporation (UPPCL) observed that adequate electricity will be available in the state between FY18 and FY22.

In August last year, in a bid conducted by the UPPCL, 18 power companies were shortlisted to supply electricity under 15-year contracts at a weighted average tariff of Rs 4.16 per unit. Jindal Power, GMR, Adani Power and JSW Energy were among the companies shortlisted. The power was planned to be shared among the six distribution utilities in the state, starting October 2016.

A GMR Energy spokesperson told FE: “The Uttar Pradesh government bid (for 3,800 MW power) was one of the very few case 1 bids (for projects without government subsidy) in the market in recent times. No discom is now coming out with long-term bids. With this cancellation, the hopes (of securing long-term power supply contracts) are dying down.” He said for salvaging the business of power developers, the government must change the regulations for coal allocations, mega power status, etc.

The latest move, analysts said, will drive independent power generators, which are operating below viable capacity utilisation thresholds, to look for other potential avenues to sell power and service debts. While the UP government attributes the decision to an expected improvement in the state’s power situation because it joined the Centre’s “24×7 Power For All” scheme, analysts said cheaper power available in the spot market might also have prompted the move. Spot power prices are ruling at below Rs 3 per unit on the Indian Energy Exchange.

The UP government’s move, analysts said, is symptomatic of the deeper malaise: On the one hand, hardly any power purchase agreements (PPAs) are being signed and now, the bids for new contracts are being cancelled; on the other, plans to set up large thermal power plants are either being put in abeyance or abandoned. The Gujarat government, for instance, recently dropped the plan to set up a 4,000 MW imported coal-based ultra mega power project at Gir Somnath district, apparently because it thinks that upcoming renewable energy units could meet the the power requirement.

About 33,000 MW of thermal power plants, with an approximate investment of about Rs 2 lakh crore, are left stranded across the country due to the lack of PPAs. The low tariffs discovered in the Uttar Pradesh reverse auction were the result of aggressive bidding by power companies, experts said.

Low demand is driving independent power producers to run their plants at low utilisation rates. The plant load factor (PLF) of private sector thermal power plants for FY17 was at 58.5%. A power plant should operate at a minimum PLF of 60% in order to be able to service debts.

Ironically, while the slackening of the power demand is an issue for industry in other parts of the country, against the peak demand of 15,501 MW in FY17, Uttar Pradesh had a shortfall of 1,682 MW. In the power-guzzling summer months last year, the average monthly power cut duration between May and August was 124 hours.