Research Report

Merchant Power Plant Business in India, 2013

Merchant Power Business in India 2013

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Coal based thermal power generation is quintessential for India, especially amidst the growing energy demand of the country. Undoubtedly with the impetus on greener source of generation, India as a country is poised to witness magnanimous changes in power capacity additions through RE sources. However, the fact that India needs massive power and through big capacities of individual power plants puts the thermal power generation through coal as a lead contributor for coming decade safely.

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DOP: September, 2013 Sector: Geography:

Following enactment of Electricity Act, 2003 and introduction of various policies under the act, the concept of Merchant Power Plants (MPPs) was pioneered with much fanfare in  the wholesale Indian power market.  MPPs – the power plants assuming full market risk for electricity sales – was thought as major competitor to its exact opposite model – long-term PPAs based Independent Power Plants (IPPs) – by the industry experts. The prime drivers behind such favorable market sentiments towards MPPs were an attractive policy and regulatory framework and a persistent peak deficit situation of more than 10 percent. Attractive environment was evident from the fact that a capacity addition of as high as 5000 MW took place within a quick time frame of four years (2007-11) , with power plants having planned capacity of 1000 MW on merchant basis. Another factor which promoted such environment was high short- term market prices ( STM)-average STM prices of INR 7.15/unit with peak time prices as high as INR 19-20/ unit.

However, since then a consistent decline in short-term market prices has been observed with average STM price lying around INR 4/unit. Moreover, continuing trend of congestion in inter-state transmission, and increasing unfavorable policy and regulatory environment (as highlighted in recent fuel linkage policies where MPPs have been denied access to any domestic fuel), has not helped the case of MPPs.

Key Queries Resolved

  • Where are the demand pockets for MPPs in India ?
  • What would be the best fuel mix to set up an MPP in India ?
  • Is the business environment suitable enough to develop Merchant Power Plants in India?
  • How much merchant power capacity addition is expected to take place?
  • How much proportion of capacity should an independent power producer leave to market forces?
  • Will MPPs a profitable venture?
  • Would economics of MPPs be viable in the underlying risk dynamics?

USPs associated with the report are as follows:

  • First hand sector knowledge and inputs
  • Primary research inputs from F2F interviews with domain experts
  • Experts insights and market reviews taken into consideration
  • Validated data and analysis
  • Opportunity mapping and market sizing
  • Germinates from minds that think fresh to evolve path finding guide for all stake holders through quality information and analysis

Key Highlights:

  • Investigating the business case for Merchant Power Plants in India
  • To assess the financial benchmarks for MPPs in India
  • To identify the demand pockets for MPPs
  • Estimating the cash flows for MPPs in India
  • To evaluate the risk – return profile assessment of MPPs in India
  • To evaluate impetus for establishing MPPs in India
  • Tracking existing opportunities in the short-term markets