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IEEFA Study: India’s UMPP Program Too Costly

August 03, 2016

From the Financial Express (New Delhi):

The proposed 4,000 MW ultra mega power project (UMPP) in Tamil Nadu’s Cheyyur is likely to be a non-starter in view of tariff risk, a report says.

According to the report by the Institute for Energy Economics and Financial Analysis (IEEFA), “The 4,000 MW coal-fired Cheyyur UMPP is likely to be a non-starter at best or a financial disaster for consumers, TANGEDCO and the state government if it actually gets built.”

It assessed that tariff rates and risks associated with the project after the Government of India proposed revised bidding guidelines to make the project more attractive in response to the withdrawal of prospective bidders who say the project was too risky.

IEEFA’s report found that even with the revised guidelines, the risks of the project remained daunting enough to deter investors and lenders.

In the unlikely event of the project being awarded by end 2016, the report estimates that electricity from the power plant will have a levelised cost of Rs 5.93 per unit – far higher than average cost of coal-based electricity. That is bad news for electricity consumers and tax-payers in Tamil Nadu, it said.

“Seen together with Tamil Nadu’s indebtedness, TANGEDCO’s hopeless financial situation and the political culture of extending freebies and heavily subsidised electricity, Cheyyur project’s expensive electricity will worsen the state’s financial situation,” said S Gandhi, former Tamil Nadu Electricity Board engineer and president of Power Engineers’ Society.

Following last year’s Cheyyur bidding fiasco, the Ministry of Power revised the bidding guidelines to allow promoters to pass on fuel cost and foreign exchange volatility to electricity consumers and own the project after the contract period.

The guidelines also guaranteed that acquisition of “critical” land will be completed by the time of the bidding.

However, there is little clarity on what is critical land and what is not critical.

In Cheyyur, land acquisition for the coal conveyor corridor, road and rail access and the ash pipeline have not even commenced, it said.

Cheyyur UMPP electricity to be unaffordable: Report

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