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Global coal price on downslide, no cheer for Indian power producers

The sharp decline in the prices of coal to $42.55 per tonne in global market is unlikely to bring any cheer to the imported coal based power producers. However, with cost of generation going down by as much as 35 per cent, the cases of ‘compensatory tariff’ contested on basis of escalating global price of coal could stand invalid now.

The global coal futures are also at 12 year low of $52.85 per tonne. “The power plants which have short term contracts for imported coal purchase will make hay as the prices go down but for a brief stint. The plants with coal linkages and the ones with long term purchase agreements of imported coal are unlikely to benefit from this downward price trend,” said a power market analyst based in Delhi.

A drop of more than 30 per cent in coal prices takes down the cost of generation by 75 per cent.

The cost of production will also not come down drastically as the port and inland logistics cost has not come down. Also, the rupee has depreciated further.

 Tata Power’s Ultra Mega Power Project (UMPP) and Adani’s 1980 mw plant, both based in Mundra, Gujarat can look at their generation cost going below the compensatory tariff they were asking, owing to increased input cost.

After the Indonesian coal prices were benchmarked with the international market price, Tata and Adani went on to appeal in the CERC to grant them compensatory tariff as the input price increased. The case then went to Supreme Court which then sent it back to Appellate Tribunal of Electricity for a fresh hearing.

Coal price in 2008 touched $130 per tonne. Since then, it has been sliding down from $80 per tonne in December 2013 to $50 in December 2014. At exchange rate of $66.65, the landing price of coal in India is in the band of Rs 2700 to Rs 3000 per tonne.

Sector experts said at the current rate the tariff is so low that the case for compensatory tariff does not stand. “Instead, this pushes the case for market driven tariff based ‘power purchase agreements (PPAs)’. The policymakers need to internationally benchmark the price of coal and define indices. So there is a bracket where in the fluctuation is factored in the PPAs,” said Kalpana Jain, senior director, Deloitte India.

Tata Mundra UMPP was bid at a levelised tariff of Rs2.26 per unit on which it asked for an escalation of 52 paisa claiming compensatory tariff. Adani Mundra plant was selling power to utilities in Haryana at Rs 1.96 per unit and to Gujarat at Rs 1.86 per unit. It asked for an escalation of 43 paisa and 71 paisa respectively for power tariff in Haryana and Gujarat.

source: http://www.business-standard.com