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BW Businessworld

Power Equation

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It's a double whammy for power plants which run on imported coal. While the spike in the prices of imported coal has made it commercially unviable for producers to keep their plants humming, the unavailability of domestic linkages is affecting their technical viability.

"Imported coal-based plants have had issues of affordability. Within technical limits, blending with domestic coal can help in both optimising performance and lowering costs of supplies. While imports are expensive, the supplies of domestic coal may help better utilisation of the plants. Although there are constraints in domestic coal supplies, the plants may be considered on a case-to-case basis, for which domestic coal blended with imported coal makes good economic sense," says Dipesh Dipu, director- consulting, mining, Deloitte Touche Tohmatsu India.

The three power companies that have to grin and bear it are JSW Energy, Adani Power and Tata Power. These producers invested in imported coal-based plants to skirt the domestic fuel shortage logjam. What they failed to take into account was the sudden increase in the price of imported coal.
The current price of imported coal is somewhere around $4-4.2 per MMBTU (million metric British thermal units) as compared to $1.76 it costs to procure domestic coal.

Since the power purchase agreements signed by these producers do not allow for fuel cost as a pass through, they now find it difficult to keep the plants operational.

Seventy per cent of the coal for these plants is imported, but it is the residual 30 per cent which is the real spanner in the works. That's because the coal linkages provided in January 2010 were withdrawn by the coal ministry in April last year. Ironically, the plants now feed only on costly imported coal which has brought down the plant load factor (PLF). The power ministry has requested the coal ministry to restore the linkages provided to these plants so that they can function at an optimum level. Apparently, the coal linkages were withdrawn without its consent, informs a senior official.

"We have requested the coal ministry to restore the linkages. It is not being done for any individual player but since all players are in distress, we have floated the request. All these producers have been badly affected by the unavailability of the domestic coal," says the official.

The domestic fuel shortage has also forced plants based on domestic coal to import expensive imported coal. According to Central Electricity Authority data, the gap between domestic availability of coal and the requirement for 2011-12 was put around 54 million tonnes.  While utilities were asked to import 35 million tonnes of coal to meet their unfulfilled requirement, plants designed on imported coal only required 20 million tonnes.  The figures for 2011-12 show imported coal-based plants could import only 17.572 million tonnes of coal.