High cost and inability to pass on to consumers immediately are being cited as key reasons
Despite pulling all strings to enhance coal supplies, the government may find itself in a tricky situation as its move to allow imports to the extent of 10 per cent for blending is likely to evoke a lukewarm response — particularly from private power producers and states — due to high international coal prices making it commercially unviable.
Due to fewer rakes being available to ferry coal, the Union Power Ministry had asked Gencos to mix 10 per cent imported coal in their feedstock, up from the earlier four per cent. Based on the requirement of 10 per cent imported coal for blending, Gencos have been advised to import coal amounting to about 60.7 million tonnes (MT). However, not all are game for it. In addition to this, there is growing concern that once monsoon breaks, transporting domestic fuel may also become challenging.
A senior government official said that so far, four-to-five states have placed orders while others have been advised to do so by May 2022. States have also been advised to sort out their commercial issues.
Action is awaited from Punjab, Rajasthan, Tamil Nadu, and a few others. This delay is putting undue pressure on domestic coal supplies, the official added.
Besides this, though cost pass-through is allowed, for states which does not have a monthly fuel cost adjustment mechanism, it typically takes 18-24 months to realise the cost increase through the annual true up mechanism, according to an industry official.
“Many of the plants which operate on cost-plus model have the mechanism to pass cost increases periodically. But there is a political angle to it and many players may not be allowed to do it, atleast not immediately. It will take atleast 18-24 months to realise and there may be a difference between what the actual increase is and what has been permitted as pass-on,” another official told BusinessLine.
According to Ritabrata Ghosh, Assistant Vice President, ICRA, while coal is available in international markets, pricing remains a challenge. If international coal prices are double or triple the price at the same time last year, it does not become commercially viable.
“Blending of imported coal with domestic is likely to ease off some pressure out of domestic supplies to the tune of around 50-60 million tonne. This will add to buffer stock and, coupled with an anticipated increase in production by Coal India during the first quarter, it is likely to ease the situation,” he said.
However, the private sector in particular might not resort to imports as it may not be commercially viable.
While Coal India claims to have ramped up production and is hopeful of achieving production of around 125-130 MT during the first quarter, it might not be sufficient to fulfil demand unless imports pick up. For example, out of Adani Power’s 12.4 Gigawatts (GW) of thermal power capacities, 4.6 GW or 4,620 megawatts (MW) at Mundra are based on imported coal source. The Fuel Supply Agreement for imported coal is for 16.4 million tonnes per annum (MTPA) for the 75 per cent PLF. The plant also uses a mix of domestic and imported coal. For domestic supplies, it has FSA for 6.4 mtpa with Coal India subsidiaries.
According to Somesh Dasgupta, Whole time Director of India Power Corporation, one of the key reasons for the current crisis lies in the fact that the country has not been able to ramp up its renewable’s capacity as per the projected estimates.
“We are not even able to achieve 10 per cent of our estimated projection under renewable energy. PPAs are not coming properly and hence, discoms are facing a challenge in getting renewable energy. It requires proper storage so as to ensure round the clock availability. So many discoms have to buy power from exchange at a premium,” he said.
“Nearly 72,000 MW capacity plants were closed during the crisis mostly due to non-availability of fuel; 20,000 MW gas-based plants are totally closed. Against the requirement of about 22 million tonne domestic coal for thermal power plants, only 16.4 million tonne coal is available every day. Inventory of coal is depleting every day and has reached a critical position,” Shailendra Dubey, Chairman of All India Power Engineers Federation, said.
(Inputs from Richa Mishra (Hyderabad); ; Rutam Vora (Ahmedabad))
Published on May 01, 2022