Peak Power Demand Likely Catalyst For Thermal Plant Acquisitions
As per data, India has 12 stressed power plant projects that are likely to be resolved under NCTL and seven projects that are being stalled.
Stressed thermal power plants could be the next addition to shopping lists of companies looking to acquires businesses with rising electricity demand. The most recent example is Adani Power's acquisition of insolvent Lanco Amarkantak Ltd.
India will need to add up to 80 gigawatts of coal-fired power plants to cater to rising power demand, according to the Ministry of Power. While this leaves 49 GW of untapped opportunity, there are several already built plants that are not operational due to insolvency issues.
Building a new coal-fired power plant from scratch can take five to seven years, according to Rupesh Sankhe, vice president of research at Elara Capital. However, if stressed assets are already in place with all necessary permits and land, it could be much faster for a company to execute a project and bring them back online, he said.
A stressed thermal power plant is one facing financial troubles or nearing bankruptcy. If it fails to pay its debts, creditors can initiate insolvency proceedings through the National Company Law Tribunal.
Why Acquire A Stressed Asset?
India's peak power demand could reach 380 GW by 2032, Sankhe said. To meet this, India needs to increase its coal-fired power capacity from 210 GW to 290 GW.
While building greenfield capacities takes five-seven years, acquiring existing struggling plants with necessary permits and land could significantly speed up the process, potentially bringing them online in just two to three years at a lower cost, he said.
Some thermal plants are ready but are not operating due to issues like fuel shortages, power purchase agreement problems, or financial difficulties. These "stressed assets" could be attractive acquisition targets, Sankhe said.
Key benefits of acquiring a stressed power plant under NCLT include:
Lower time to market, allowing immediate or near-immediate operations.
Reduction of upfront costs and time to acquire infra like land, buildings, equipment.
Stressed assets are typically sold at a discounted price.
Acquisition usually costs less capex compared to building a new plant.
NCLT process involve restructuring debt and contracts, leading to more favourable financial terms.
Plants usually have regulatory approvals, grid connectivity in place.
Acquisition Potential
India has 12 stressed power plant projects undergoing insolvency proceedings through the National Company Law Tribunal, which are more likely to be resolved, according to Elara's data. These projects generally have power purchase agreements and fuel supply arrangements in place.
The total planned capacities of these projects are 15.5 GW, of which 9.9 GW of capacity are already commissioned.
Additionally, there are seven other projects that are stalled and unlikely to be resolved under NCLT. These have an aggregate planned capacity of 7.4 GW, of which only 135 MW has been commissioned. Most of the projects do not have power purchase agreements and fuel linkages.
Projects Resolved
Approximately 15 stressed power plant projects have been successfully resolved in India. These projects were either resolved through the National Company Law Tribunal process, or were acquired by other companies that are now working to revitalise them.
These resolved projects have a combined capacity of 17.1 gigawatts, with 16.1 gigawatts already operational. A significant majority of these projects—33 out of 34—already had power purchase agreements and fuel supply arrangements in place.
Notable examples include the Adani Power's latest acquisition of acquiring insolvent thermal power project- Lanco Amarkantak, Ind Barath (Utkal) Ltd. project acquired by JSW Energy Ltd., acquisition of DB Power Coal Based Project's take over by Larsen & Toubro Ltd.
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