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Inefficient Power Plant: Do PPAs Involved ?

News:

Cost per MW is higher for plant with PPAs than without it. When there is a secured buyer in place for the power generated, inefficiency invariably creeps in, which is reflected in higher capacity costs. These higher costs get passed on, burdening the SEBs and the consumer.
Source: Business Line

SNP Insights:

"PPA breed inefficiency in Power Plant" on the basis of finding that  cost per MW is about 24 per cent higher for projects with PPAs is seem to be dicey. It might not be the PPA which is making power developer inefficient but could be the financial health of discom which may be forcing power plant to operate at low PLF and which in turn shooting up the cost per MW due to recovery of fixed cost.

Also, reason for the increment in cost per MW due to Projects with PPAs have lower debt funding, indicating that equity investors are willing to invest more in such projects are seem to be unviable to some extend. As, the debt:equity ratio in case of power plant is 70:30 and the regulation would not allow to go equity beyond 30% as return on power plant is fixed cost depending on the percentage of equity.
Source: SNP Infra Research