The Covid-19 pandemic and the consequent national and regional lockdowns that hit industrial and commercial activity, have drastically curtailed operations for India’s captive power producers. Companies find sale prices on the energy exchanges not viable even as their own captive demand is minimal.
Some of the large steel and cement units rely on their own captive power capacities to ensure steady supply for critical processes. Some of these companies also sell part of the power generated on the energy exchanges.
Executives from Indian Energy Exchange (IEX) in July pointed out volumes from captive power plants went down drastically post March, in tandem with the traded prices. For the day-ahead market, average market clearing price for August 15 was Rs 1.64 per unit (kilowatt/hour).
Industry executives say selling captive power on the exchanges at present is economically unviable. Cement producer Shree Cement is one such company with a captive power capacity, some of which is sold on the exchanges. “Because of the lockdown, power demand in the country was impacted and some of our power capacities were shut. After the lockdown was lifted, power demand was weak and has not completely recovered yet. Right now, the power plants are shut because there is no demand, viability is the second part,” said Prashant Bangur, joint managing director, Shree Cement. The executive said the company operates a capacity of 650 megawatt (Mw), of which 300 Mw is merchant power.
Power producer JSW Energy in an earnings call in July said the company's sale to distribution companies went up 8 per cent during the June quarter, whereas group captive sales were down by 25 per cent. JSW Energy has power supply agreements with group company JSW Steel. Prashant Jain, joint managing director and chief executive officer for the company on the call added, "Our contraction in generation was primarily from the group captive customers because of the lockdown, they had to stop their operations, and then they are now back to normal."
Rajiv Agarwal, secretary general for Indian Captive Power Producers Association (ICPPA), pegs the country’s total captive power capacity at 75 gigawatt (Gw). He said a large portion of this was hit due to a combination of higher coal prices and lower power demand. At an industry level, Agarwal estimated of the 50-55 Gw of thermal-based captive power capacity, just 40-50 per cent of the working capacity is being utilised. “Whatever captive plants are producing are not economical for the power exchange right now, overall power demand from industries itself is very low, even plants which are not selling to the exchange are also operating plants at 40 to 60 per cent utilisation," he said.
The issue boils down to cost of production. Agarwal pointed out Coal India prices due to the e-auction policy is higher than that of imported coal. This has led to a conundrum where coal costs are high, however demand and sale price for power in low.
Bangur from Shree Cement added it is not unusual for captive power plants to shut down capacity during low demand. However, he points out the lockdown also robbed captive power generators of the peak demand seen between January and through the summers. He remains unsure when will captive power capacity start operations again. Bangur, however, added his company’s earnings before interest, taxation, depreciation and amortisation or Ebitda will remain largely unimpacted. “Merchant power contribution is not significant now, five to seven years ago it was critical, as we have grown our cement business, it is just 5 per cent of our turnover and Ebitda,” he said.