MOSL: TATA POWER (Neutral)-BEST extends Trombay 676MW PPA by five years

Tata Power: BEST extends Trombay 676MW PPA by five years; Maintain Neutral

(TPWR IN, Mkt Cap USD2.9b, CMP INR74, TP INR72, 3% Downside, Neutral)

BEST extends Trombay PPA by five years, removes uncertainty

• After about a year-long competitive bidding process, BEST DISCOM found it economical to extend the existing PPA with Tata Power’s Trombay and hydro power plants due to transmission constraints in Mumbai. Mumbai distribution circle relies heavily on embedded generation. There are limitations in sourcing power from outside Mumbai. The PPA (for ~676MW) is extended by five years to Mar’24. Tariff will continue to be based on regulatory norms in Maharashtra. The regulated equity in the plant is ~INR19b (~1,847MW). 

Transmission constraints and cheaper hydro tilt equation in favor of Tata

• The blended tariff of INR4.63/kWh under the existing PPA was lower than the competitively discovered price of INR4.72/kWh, which also shifted the balance in favor of Tata. The blended tariff under the existing PPA includes hydro assets of 227MW costing less than INR2.5/kWh and remaining coal/gas plants costing upward of INR4/kWh. BEST could have sliced and chosen the favorable portion from the existing PPA (i.e. hydro assets) and portions from the competitive bids to get a blended tariff lower than INR4.63/kWh. However, due to transmission limitation, requiring compulsory running of embedded generation, this option became unviable.