Abstract
Power sector reforms in India have focused initially on the privatization of power generation. The power purchase agreement (PPA) signed between an independent power project (IPP) and a state-owned electricity board determines the viability of the IPP and the tariff that consumers pay. This article builds a financial model for estimating the net present value of an IPP based on specific PPA contractual conditions. Partial derivatives with respect to the plant load factor (PLF), the benchmark heat rate, and the debt maturity are established. These partial derivatives provide an understanding of the sensitivity of the project viability to technical performance and debt maturity. Partial derivatives are also provided for the sensitivity of consumer gains to the above factors. Both these sets of partial derivatives provide an enhanced understanding of contractual conditions. A numerical illustration demonstrates that lengthening debt maturity can add considerable value to equityholders.
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