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New UserHigher coal imports likely to increase the cost of supply for discoms by 4.5-5.0% in FY2023
11 May 2022
he Ministry of Power has issued a directive
under Section 11 of the Electricity Act, stating that all imported coal-based
power plants shall operate and generate power at their total capacity to meet
the growing demand.
Higher coal imports likely to increase the cost of supply
for discoms by 4.5-5.0% in FY2023
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MoP has now directed all states and
GENCOs based on domestic coal to import at least 10% of their fuel requirement
for blending with domestic coal and meet the growing demand for electricity.
·
The MoP, earlier in December 2021,
had issued an advisory to the state GENCOs & IPPs to meet their coal
requirements through the blending of imported coal to the extent of 4%.
New Delhi: The government measures to ease power
supply constraints through higher coal imports are likely to increase the cost
of supply for discoms by 4.5-5.0% in FY2023, rating agency ICRA said in a
statement.
The
Ministry of Power (MoP), vide its notification dated May 5, 2022, has issued a
directive under Section 11 of the Electricity Act, stating that all imported
coal-based power plants shall operate and generate power at their total
capacity to meet the growing demand.
As per this
directive, the MoP has now directed all states and GENCOs based on domestic
coal to import at least 10% of their fuel requirement for blending with
domestic coal and meet the growing demand for electricity. This directive by
the MoP is valid till October 31, 2022.
As the
present power purchase agreements (PPAs) do not provide for a pass-through of
the fuel cost for these projects, the tariff for supply from these plants under
the PPAs shall be worked out by a committee with representatives from the MoP,
the CEA and the CERC considering the prevailing coal prices, ICRA said. The
MoP, earlier in December 2021, had issued an advisory to the state GENCOs &
IPPs to meet their coal requirements through the blending of imported coal to
the extent of 4%.
The
directive has come in view of the fact that the improvement in the average coal
stock level for the thermal generation capacity on an all India basis continues
to remain slow, as seen from the stock position of 8 days as of May 7, 2022, as
against nine days as on November 30, 2021, which recovered from the lowest
level of 4 days as of September 30, 2021, as against the normative requirement
level of 24 days.
“All India
energy demand in April & May (till date) 2022, grew by 11.5% and 17.6%
Y-o-Y respectively, also supported by heatwave/weather conditions, while tight
domestic coal supply position and elevated international coal price levels
continued to affect the energy generation levels. Measures directed by the MoP
to ease the power supply constraints through
The higher
share of imports for thermal generation under a pass-through arrangement as
directed by the MoP is further expected to lead to an increase in the cost of
supply for state discoms by 4.5% - 5.0% in FY2023 at an all India level,
considering the increase in the share of imported coal and coal price level at
US$ 110 per MT for coal GCV of 4200 kcal/kg, he further added.
In terms of
coal import dependency for the power sector, the share of coal imports in the
overall coal requirements for the power sector declined to about 4% in FY2022
against that of 8% in FY2021, amid the increase in international coal price
level by more than 150% over the last 12-month period (Indonesian coal price
index) and challenges faced by the IPPs to pass on the fuel price cost increase
to the distribution utilities (discoms) under the PPAs.
With a
sharp increase in coal price levels internationally over the past 14 months,
the variable cost of generation for imported coal-based power projects is
estimated to have increased by more than Rs. 3.0 per unit between March 2021
and May 2022.
“The
estimated increase in the cost of supply for the discoms amid the higher share
of coal imports to meet the demand is likely to increase the cash gap per unit
for discoms at the all India level to 68 paise per unit in FY2023 against 50
paise per unit estimated earlier.” said, Vikram V, Vice President & Sector
Head – Corporate ratings, ICRA.
This is
considering a 5.0% increase in the cost of supply and an average tariff hike of
4.5% for the discoms at the all-India level. As a result, timely & adequate
tariff determination by the regulators and the timely implementation of fuel
cost adjustment (FCA) pass-through (either monthly or quarterly as per the
applicable regulations) thus remains a key monitorable for the discoms added.
The outlook
for state-owned distribution utilities remains negative due to the continued
weak financial position as a result of inadequate tariffs, higher than allowed
distribution loss levels, and inadequate subsidy dependence. Nonetheless, the
credit profile of privately-owned distribution utilities remains supported by
operational strengths arising from the demographic profile, operational
efficiencies, tariff adequacy, and sponsor strengths, respectively.