Funding New Thermal Power Plants May Create Stranded Assets: IEEFA Report

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A latest report by the Institute for Energy Efficiency and Financial Analysis (IEEFA) claimed that new investments in thermal power plants could potentially lead to new stranded assets. The report said it is due to the economic benefits of renewable energy.

The report titled ‘Cleaning up the last pile of India’s power sector Non-Performing Assets (NPAs)’ discusses the likely fate of funding new thermal power plants rather than reusing older thermal power plants. The report analysis found that strategic acquisition and revival of stranded TSPs could cater to the country’s short-term energy security. 

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“Banks financing new thermal plants will risk having future non-performing assets and higher climate risks on their portfolios. Instead, we propose an acquire-retire-repurpose model, wherein companies like NTPC, India’s largest power producer, can buy stranded thermal plants to meet the short-term needs of the country, retire the plants and repurpose them for renewable energy generation to keep their environment, and social and governance (ESG) profiles intact,” the report read. 

The 37th Parliamentary Standing Committee on Energy claimed that the Ministry of Power deemed 34 coal-based thermal power plants ‘stressed’ in March 2018 with a combined debt of USD 23 billion. The IEEFA report claimed that as on April 2023, 26 of these stressed assets had been resolved fully or partially, with strategic buyers acquiring 11 of these plants. 

“The newly formed Power Finance Corporation (PFC)-REC joint venture, PFC Projects Limited (PPL), and India’s bad bank, the National Asset Reconstruction Company Limited (NARCL), can make these acquisitions through partnerships. PFC and REC formed PPL to acquire stressed power assets and bring in strategic investors to operate, maintain, and complete them wherever required,” the report said. 

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The report identified a set of six stressed power sector assets with a combined capacity of 6.1 GW, currently identified as NPA accounts and fit for acquisition by NTPC. 

“But the acquisition of such assets should be just the first step. IEEFA believes adding thermal assets to NTPC’s new or acquired portfolio will lead to stranded asset risk and harm the company’s environmental, social and governance (ESG) profile. NTPC has a target of installing 60GW of renewable energy capacity by 2030, which would require securing capital from global ESG investors,” the report said. 

It also added that a post-acquisition strategy to retire and repurpose acquired stressed thermal assets would align well with ESG investors and prevent future stranded non-renewable energy assets on NTPC’s books. “The company can also explore the burgeoning market for carbon credits trading to further improve returns from repurposed projects,” the report said. 

The report talks about the stressed power assets that were acquired by different players. Source: IEEFA Report