Essar Energy is to sign a power purchase agreement with the Bihar State Electricity Board in a move that analysts welcomed as a sign that prices for power suppliers are on the rise.
The PPA – the second to be signed between the Bihar electricity board and Essar Energy Jharkhand Ltd – will be for 300 megawatts of contracted capacity for 25 years for its 1,200-MW Tori 1 power station in Jharkand.
The power will be supplied at a levelised tariff of Rs 3.28 per kWh, against the Rs 2.64 per kWh achieved in the previous contract, making the deal worth between $3.5 billion and $4 billion over the 25-year period.
Competitive process
“The company guides that it was the result of a competitive process, implying that prices that are being bid by power providers in India are on the increase, possibly due to some of the problems experienced with fuel supply,” wrote Arden Partners analyst David Larkham in a note to investors. “If these higher prices continue, it could provide upside for Essar going forward.”
He added that despite the fact that the deal isn't due to come into place till 2015 (Tori I is due to be completed in the next couple of years), Essar had guided that the power could be sold to the merchant market, or even that BSEB could take power earlier.
Essar's capacity
Essar Energy currently has 1,600 MW of capacity operational, and an additional 8,070 MW under construction, as it hopes to increase power generation's contribution to its overall revenues, currently dominated by its refinery business. Other projects under construction include Mahan 1 in Madhya Pradesh, with 1,200 MW capacity, Salaya I, II and III in Gujarat, with 1,200 MW, 1,320 MW, and 600 MW capacity respectively.
The project
Last year, the same Essar subsidiary signed a separate 25-year PPA with the Bihar State Electricity Board for 450 MW of capacity from Tori I.
Tori I in Latehar is a coal fired power project, which is set to use coal sourced from nearby Chakla and Ashok Karkata, which are awaiting forest clearance. EPJL has applied for a temporary coal linkage supply should the mining operations not begin on time for the power station commissioning, or to cover any production shortfalls.
“This PPA with Bihar will be the latest demonstration of the progress we are making in securing revenues from our investments in power generation in India,” said the Chief Executive Officer, Mr Naresh Nayyar, following the latest deal.