It's never been tougher to be a coal-fired power producer. NTPC Ltd has received 34 proposals from private firms eager to sell their operational or under-construction capacity, it revealed in a conference call. These proposals amount to a total of 55,000 megawatts (MW). That number is larger than the existing operational coal-fired power producing capacity of the private sector. It is even bigger than NTPC's operational and under-construction capacity. Ironically, the private sector, which had entered the sector pell mell, is now rushing for the exits.
Yet, this rush to sell is not surprising to observers of the Indian power sector. It's difficult to run a business where the input is supplied for the most part by a monopoly provider and output prices are regulated by the government. Even if they have managed to secure coal, many power plants are in distress because there is no demand growth from their buyers—state electricity boards, which are in financial throes. These problems can be encapsulated in one number—the plant load factor (PLF), or capacity utilization of thermal plants. PLFs have fallen to 65.8% in 2013-14 compared with a peak 78.6% in 2007-08.
Does this mean that India is going to see excess capacity of coal-fired plants with at least 69,000 MW likely to come up in the next few years? With one of the lowest per capita electricity consumption in the world, it is undeniable that India needs more power capacity.
However, for that the government needs to clean up the distribution business. There seems no intent on that, at least for the time being. For instance, half the 15 tariff orders passed by state electricity regulatory panels this year have skipped any rate changes.
Unless that happens, the true on-the-ground demand for power will remain suppressed. That means power plants will remain under-utilized and their owners will rush to sell these assets.