A High-Stakes Thermal Asset. A Strategic Valuation. A Smarter Recovery Path
A coal-based Thermal Power Plant in South India had entered insolvency following loan defaults. The asset—partially operational, partially under construction—presented a complicated valuation scenario with multiple unknowns.
RNC was brought in to deliver a valuation that would guide lenders in making a data-backed decision: revive or recover?
This case study outlines the challenges, our bifurcated approach, and how our strategy enabled lenders to unlock optimal recovery from a stranded asset.
Asset Background: The Power Plant in Focus
The subject was a coal-fired Thermal Power Plant with:
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2 power generation units
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Unit 1: Operational and connected to the grid
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Unit 2: Under construction, with no defined commissioning date
Once seen as a valuable contributor to regional power supply, the plant ran into financial difficulty, ultimately triggering the insolvency process. Lenders required a clear and practical valuation to proceed with asset resolution.
Key Challenges in Valuation
Valuing this asset involved navigating several on-ground and regulatory obstacles:
Expired EPC Contracts
With all Engineering, Procurement, and Construction (EPC) agreements terminated, no contractual obligations existed to complete the under-construction unit.
Imported Equipment
High-value imported machinery required specialized assessment for functional and resale viability.
Absence of Power Purchase Agreements (PPAs)
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No PPA existed for the completed unit.
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No firm agreement was planned for the upcoming unit.
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Without PPAs, revenue modeling was speculative.
No Clear Completion Timeline
The second unit’s incomplete status, coupled with no reliable finish date, increased uncertainty and future investment needs.
Factors Leading to Impairment in Value
Several market and operational realities further eroded the plant’s perceived value:
| Impairment Factor | Description |
|---|---|
| Regulatory Risk | Re-approvals required post-sale |
| Terminated Contracts | Fuel, PPA, EPC all inactive |
| Machinery Deterioration | Aging assets on-site |
| Cost Overruns | Escalated project costs |
| No Fuel Supply Agreements | No fuel procurement assurance |
These made the plant an unattractive turnkey acquisition for many potential bidders.
Our Strategic Valuation Approach
Key Principle:
Balance practical valuation with marketable recovery options.
Given the split operational status of the plant and the absence of enabling contracts, we developed a two-pronged valuation strategy designed to:
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Represent both optimistic and conservative outcomes
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Offer the lenders realistic options based on market conditions
Solution: Two Scenario-Based Valuations
1. Scenario A: Valuation as a Complete Going Concern
Assuming both units would be completed and operational, we applied:
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Discounted Cash Flow (DCF) analysis with conservative assumptions
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No-fuel, no-PPA fallback scenarios
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Capital cost provisioning and time value for plant completion
Purpose: Attract bidders interested in acquiring and completing the asset
2. Scenario B: Hybrid Valuation (Unit 1 as Going Concern + Unit 2 Piecemeal)
We split the valuation as:
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Unit 1: Going concern valuation based on existing capacity and market potential
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Unit 2: Asset-based (piecemeal) valuation focused on:
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Salvage value of equipment
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Civil work completion levels
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Scrap/resale estimates
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Purpose: Maximize value for lenders even in a partial sale or liquidation route
Impact: Actionable Valuation, Smarter Recovery
Our approach provided lenders with:
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A structured, scenario-driven report with valuation ranges
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Flexibility to decide on complete vs. partial asset disposal
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Confidence to proceed with bidding, auction, or sale negotiations
Outcome: Informed bidding process that improved asset appeal and led to better recovery outcomes.
Key Learnings for Insolvency Professionals & Lenders
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Always develop dual valuation models (going concern + asset-based) for stranded infra.
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Absence of PPAs, fuel contracts, or EPC continuity must be treated as value-reducing risks.
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Valuing partially completed projects requires deeper due diligence and flexible modeling.
Ready to Get Your Energy or Infrastructure Asset Valued?
Whether it’s an operating plant or one under distress, our valuation experts can deliver data-backed reports aligned with insolvency laws, regulator expectations, and investor expectations.
Read More: Valuation of an under-construction commercial project by Discounted Cash Flow (DCF)
FAQs:
1. What is the valuation method for a Thermal Power Plant?
Most commonly, a Discounted Cash Flow (DCF) method is used, factoring in tariffs, capacity utilization, O&M costs, and asset life. For stranded or incomplete assets, a hybrid or asset-based approach may be used.
2. Why do Power Plants lose value during insolvency?
Loss of PPAs, expired contracts, regulatory hurdles, and machinery deterioration can all contribute to significant value impairment.
3. Can a partially built power plant still be sold?
Yes. If structured properly, Unit-based sale or equipment liquidation can still provide meaningful returns for lenders or asset managers.
4. How long does a valuation process take?
Typically 4–6 weeks depending on asset complexity, site access, and data availability.
5. Is PPA required for valuation?
While not mandatory, a valid Power Purchase Agreement significantly improves valuation certainty by defining future revenue streams.
About the Author – Sahil R. Narula
Sahil R. Narula is the Managing Partner at RNC, a prominent firm specializing in techno-commercial advisory services for the real estate and construction sectors in India . Based in Mumbai, he brings extensive expertise in project valuation, financial modeling, and asset performance analysis. Sahil holds a degree from Shivaji University and leverages his deep industry knowledge to guide developers and investors through complex valuation challenges and distressed asset scenarios.
Connect with Sahil R. Narula on LinkedIn:
https://in.linkedin.com/in/sahilrnarula/