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Indian power tariffs set to rise as CIL hike coal prices

Power News - Published on Thu, 11 Jan 2018

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Economic Times reported that power tariffs across the country are set to rise by 11 paise per unit or 2% on the back of the 9% hike in thermal coal prices announced by state-run miner Coal India Ltd.

Coal-based power generators with an automatic pass-through of fuel costs account for around 60%of the total power procured by discoms. Assuming a partial pass-through by other Independent Power Producers with competitively bid PPAs which account for balance, this translates into about 9 paise per unit increase in power procurement cost for discoms on an all India basis.

Mr Sabyasachi Majumdar, Senior Vice President at research and ratings agency ICRA said that "In turn, assuming the average AT&C loss level at around 23 per cent in the country, we estimate the impact on cost of power supply per unit sold and retail tariffs (assuming full pass through by regulators) at around 11 paisa per unit or about 2 per cent tariff hike.”

CIL had issued a notification on Monday revising the prices of pit head run-of-mine (ROM) prices of all grades of non-coking coal effective from midnight of January 9, 2018. The price of thermal grade coal with Gross Calorific Value (GCV) of 3,100 kcal per kg to 4300 kcal per kg for supply to power sector has been increased by about 15-18 per cent. This, along with the levy of evacuation charges of INR 50 per tonne is estimated to increase the cost of generation for coal-based power plants by about 13 to 15 paise per unit.

Power generators and IPPs which have cost plus-based PPAs would be able to pass on this increase in fuel cost to their off-takers, mainly state-owned distribution utilities. For domestic coal-based IPPs which have competitively bid-based PPAs, the impact on the margins will be dependent on the extent of escalable energy charge component in the tariff structure.

For Gencos and IPPs without long-term PPAs and having exposure to short-term PPAs, the profitability will be negatively impacted with rise in coal price, given the subdued short-term tariffs with the surplus generation capacity available in the country.

According to the agency, the increase in the price of coal by CIL comes as a negative development for discoms as this would increase their cost of power procurement and, in turn, the overall cost of supply. However, the state-wise extent of increase in cost of power supply and hence, in retail tariff, for a distribution utility would be dependent upon the mix of coal-based generation in its overall power procurement.

Mr Majumdar said that "Further, thermal cost of generation is likely to remain on upward pressure due to capex requirement for complying with the revised environment norms, operating cost associated with the same as well as the cost of ensuring flexibility in operations with rising share of renewables, going forward.”

With the increase in cost of power procurement, the ability of discoms to pass on such variation to the consumers through timely tariff adjustment under the fuel & power purchase cost adjustment (FPPCA) framework remains important from their cash flow perspective, ICRA said. It, however, added that FPPCA has not been implemented in many of the key states, and in states where it has been implemented, there has been a significant lag in recovery of the same.

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Posted By : Nanda Koijam on Thu, 11 Jan 2018
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