Industry sceptical about proposed 5 ultra mega power plants

New Delhi: At a time when the successful coal auctions bring hope for India's power sector and the 2015-16 Budget proposes five new ultra mega power projects (UMPPs), the industry itself doubts whether sector constraints would allow these projects to make the grid.

Finance Minister Arun Jaitley has in the budget for the next fiscal proposed setting up five new ultra mega power projects (UMPPs), each of 4,000 MWs, in the "plug-and-play mode", with all clearances and linkages ready before the project is awarded by auction.

This will unlock investments to the extent of Rs.100,000 crore, Jaitley said presenting his first full union budget.

The finance minister also proposed a higher pollution cess on coal and a big thrust to renewable energy-based generation.

For the next fiscal, Jaitley proposed the doubling of the green tax on coal from Rs.100 per tonne to Rs.200 for funding investment in renewable sources and clean coal technology for power plants.

Manish Agarwal of international accounting firm KPMG in India doubts whether the power sector has the financial capacity to invest in the five new UMPPs.

"There was mention of five ultra-mega power projects under the‘plug and play’ model to get approvals, clearances in place before auctioning them. However, whether the sector has financial capacity to invest in new capacity of such scale remains a question mark," Agarwal said in a statement here.

According to the Independent Power Producers Association of India (IPPAI), "It looks unlikely that the government would succeed in implementing its proposals given the lacklustre industry response to Odisha and Tamil Nadu UMPPs, which forced the government to cancel their bidding."

"Moreover, the poor financial health of power distribution companies could also prove a big put-off to investors," it added.

The Federation of Indian Chambers of Commerce and Industry (Ficci)said in its budget analysis that "there has not been any major announcement being made for the power sector except the setting up of UMPPs."

The target for renewable energy has been set at 175,000 MW capacity by 2022, of which solar power will have the largest share at 100,000 MW.

Wind energy will contribute 60,000 MW, followed by 10,000 MW from biomass, and 5,000 MW of small hydro projects of up to 25 MW each.

India's solar power generation capacity currently stands at 3,000 MW, accounting for 6.5 percent of the electricity mix.

Commenting on the budget proposals, Ratul Puri, chairman, Hindustan Powerprojects, said that "the doubling of coal cess will provide incremental Rs.10,000 crore a year to help push renewable energy and will bring the cost of solar power to grid parity."