Amid coal crunch, relief for power companies

NEW DELHI: The power ministry has allowed independent power producers (IPPs) burning imported coal to pass on the higher fuel costs till December with a view to restarting stalled capacity as domestic coal-based generation stations across the country struggle to cope with rising demand because of low fuel inventories, sources said.

The decision, taken at a meeting last week to take stock of the power situation, is expected to switch on 7,980MW of imported coal-based generation capacity of Tata Power, Adani Power, Essar Power, ILF&S Tamil Nadu, Coastal Energen, Udupi Power and GSECL Sika Ltd. Most of the capacity was shut primarily after consumer states refused to pay for the rise in global coal prices.

The imported coal cost will be benchmarked to HBA (Harba Batubara Acuan) Index for Indonesian coal and the states will be free to exit the pass-through arrangement after December 31. The index has shot up more than 30% after the Russia-Ukraine conflict. States that fail to take steps to get the stalled imported coal-based capacity up and running will face reduction in domestic coal supply after two weeks.

Broadly, the plan is that states that have PPAs (power purchase agreements) with the power producers will sign supplementary agreements, as the case may be, on the pass-through of the imported coal price. Gujarat’s methodology of calculating pass-through tariff has been suggested as a benchmark for other states.

The focus on the imported coal-based plants is because the government cannot afford to let imported coal-based power plants idle on grounds of high fuel costs. It expects peak demand to touch 210GW this month and wants all coal-based power plants to have enough fuel inventory to supply about 160GW during peak hours. But coal stocks at the power plants were only 36% of the normative requirement, which is good for only about 11 days. This is because the daily consumption of coal is more than the actual supply at power plants, which is leading to faster drawdown of inventories. For Adani Power’s 1,980MW Phase-III of the Mundra plant, which has some domestic coal supply component, Central Electricity Authority is to work out the quantity of imported and domestic fuel on the basis of inputs from procuring states and the generation company as well as taking into account the terms of FSA (fuel supply agreement) and PPAs with each state.

For Essar’s 1,200MW Salaya plant, the entire cost of imported coal will be allowed to be passed on without any ceiling if imported coal prices remain above the pre-Covid level.

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