Electricity tariffs may rise in Mumbai on spike in global coal prices

Maharashtra power regulator had set tariff for Mumbai users for 5 years in March 2020 when Richard Bay coal prices were at $64-72 a tonne. Since then, coal prices have quadrupled

A sharp rise in the international coal prices in the last one year is causing electricity generation and distribution companies like Tata Power and Adani Electricity to raise tariffs from the next financial year for Mumbai consumers.

The Maharashtra electricity regulator had determined the tariff for Mumbai customers for five years in March 2020 when Richard Bay coal prices were hovering at $64-72 a tonne. Since then, the coal prices have gone up by 300 per cent (see chart).

Based on rising coal prices, Tata Power is likely to raise its electricity tariff by Rs 1.10 a unit while Adani consumers are facing a marginal hike of Rs 0.15 to Rs 0.25, industry sources said. The price revision will take effect in the first quarter of next fiscal beginning April 1.  

While Tata Power’s Trombay unit imports its entire coal requirements from overseas, Adani’s Dahanu unit imports coal only to meet any shortfall in domestic coal supply. Tata Power supplies power to its own customers as well as to BEST – which, in turn, distributes electricity to South Mumbai customers. Adani Electricity is distributing power in the Mumbai suburbs.

In Maharashtra, any change in fuel prices is passed on to customers as fuel adjustment charges (FAC) in their monthly bills. But due to the pandemic, the Maharashtra electricity regulator had asked both companies to create a FAC fund to be created and recovered from consumers at a later date. For both companies, the FAC fund was in surplus during fiscal 2021 but in fiscal 2022, the surplus funds were exhausted due to the substantial rise in imported coal prices.

“Both companies will start charging FAC in the monthly bills in the next fiscal. If FAC levy is delayed then price rise would accumulate and consumers would get a tariff shock,” said a source close to the development.

When contacted, a Tata Power spokesperson said due to force majeure conditions, such as war, there has been an increase in international fuel prices which impacts the power purchase cost. “However, Tata Power sources most of the coal from Indonesia through a long term fuel supply agreement linked to the local indexation. Due to this reason, coal sourcing cost is very much optimised. Besides, the supply to Mumbai consumers is a mix through the 180 Mw gas based price which is linked to APM gas and 440 Mw of hydro power which brings down the pool cost of power,” the spokesperson said.

Tata Power also sources nearly 350 Mw of renewable power at very competitive tariffs. Hence all efforts are made by Tata Power to optimise the power supply cost by pooling in power from coal, gas, hydro and renewable power to avoid any tariff rise on account of FAC to consumers.  The spokesperson said the cost of power supply is optimised to avoid any tariff rise on account of FAC to the consumers.

‘’The pooled cost of power to the consumers over the last one year is in the range of Rs 4 to 4.10 per unit which is much lower than all other suppliers of power in Mumbai and Maharashtra,” the spokesperson said.

An Adani Electricity Mumbai (AEML) spokesperson said the company has taken concrete steps to provide long-term tariff visibility to its consumers. “The 100 per cent domestic coal supply to Dahanu TPP ensures that consumers are not impacted by the alarming increase in imported coal prices. Further the Commencement of power supply under the 700 Mw renewable energy PPA has significantly diminished our exposure to merchant power prices. AEML is also in the process to procure an additional 1,000 Mw power with the largest portion coming from renewable energy sources. Consumers can expect AMEL's tariff structure to be the most economical and sustainable choice,” the spokesperson said.

On Tuesday, Tata Power shares closed at Rs 239 a share with a total market valuation of Rs 76,500 crore.