Absence of coal linkage policy hurts power plants

Short-term measures might impact the long-term plans of power producers, including Adani Power, KSK Energy Ventures and state-owned NTPC, which are arranging coal through the e-auction route or imports in the absence of a coal linkage policy, which impact the viability of their projects.

For example, Adani Power’s 3,300-megawatt (Mw) coal-based plant in Tiroda has signed a power purchase agreement (PPA) at competitive prices but it has linkage for only 1,180 Mw. The remaining fuel requirement of the power station is met through e-auction or via imported coal.

The Lohara West Extension coal block of the Wardha Valley coalfield was allocated to the Tiroda plant in November 2007. However, before the commencement of any mining activity, the environment ministry cancelled the allotment, as the mine came under the wildlife corridor for a tiger reserve.

The plight of the company’s 1,320-Mw Kawai plant in Rajasthan is no better. This plant is awaiting the government’s new coal linkage policy, which has been in the works for at least a year now.

Plugging into power needs: Coal-based power plants requiring linkages
Plant Company Capacity (in Mw) Plant status
Akaltara I & II      KSK Energy Ventures 1,200 Commissioned
Akaltara III & IV KSK Energy Ventures 1,200 Likely to be commissioned in 2016-17
Akaltara V & VI KSK Energy Ventures 1,200 Likely to be commissioned in 2018-19
Kamalanga II & III GMR Energy 550 Commissioned
Tiroda II & III    Adani Power 800 Commissioned
Unchahar NTPC 500 Likely to be commissioned in 2016-17
Gadarwara   NTPC 1,600 Likely to be commissioned in 2017-18
Source: Power ministry

According to a power ministry official, delays in coal linkage policy are affecting the viability of thermal plants of power companies and might impact their overall performance.

According to an official in the know, KSK Energy Ventures is reviewing its expansion plans and might even reduce it to half. The company has commissioned two 600-Mw units, and another two 600-Mw units are expected during the current financial year (2016-17). Its 1,200-Mw capacity is likely to be commissioned in 2018-19.

Rise in coal prices has led to an increase in the variable cost of power producers. This, in turn, would be recovered from the end-consumer in the form of higher tariff. But, there is a flipside to it – expensive power has fewer takers.

Experts are of the view that coal linkage would reduce the cost of fuel transportation and, hence, the affordability of electricity will increase. According to a senior coal ministry official, the supply of dry fuel is not the issue – the issue is demand.

The average plant load factor or the efficiency at which coal-based thermal power plants are running is 59 per cent. The entire capacity of power stations is not being harnessed due to lack of demand for electricity from the power distribution companies, the ministry official added. According to the coal ministry, power plants that have fuel supply agreements in place are getting coal.

According to another official, some of the private power companies envisaged executing thermal power plants on imported coal. Now that the cost of international coal has gone up, they want to buy cheaper domestic coal.

Interestingly, the surge in the price of international coal is due to supply reduction by China and not on account of higher demand. But, the price rise impacted coal imports by India, which reduced to 13.7 per cent last month.

Indian power utilities imported 15.59 million tonnes of coal in October, against 18.08 million tonnes in October 2015.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel