Power producers likely to look at domestic coal to cut costs

Tata Power would look at domestic coal at its Mundra plant to cut losses

Private power producers may be looking at sourcing domestic coal to cut costs and keep power projects viable in the wake of volatile imported coal prices and regulatory decisions favouring the partial shift.
 
Tata Power, JSW Energy, and Essar Power are among the bigger names considering partially using domestic coal at plants developed to run on imported coal only.
 
Kameswara Rao, partner at PwC India, said early discussions on using domestic coal at plants had started. “It is possible to blend domestic coal up to 20 per cent, depending on plant design. Some investment is still needed, for example, to set up washeries, increase the capacity of the coal-handling plant, get more land for storage, etc. So, this will happen over a period of time,” Rao said.
 
For some such as JSW Energy and Essar Power, rising prices of imported coal are one of the main drivers in this regard. “The company is striving to bring down costs and we have taken a few steps in that direction, the foremost being that we have taken permission from the ministry of environment for blending our imported coal-based plants with at least 50 per cent domestic coal,” Sanjay Sagar, joint managing director and chief executive officer, JSW Energy, told analysts earlier this month.
 

Sagar is looking at using domestic coal as an ideal hedge in the situation of volatile coal prices. “That would hedge our exposure to the volatilities in the international coal market while leaving us with the option of picking up imported coal as and when it starts making more sense to do so,” he told analysts.
 
Between April last year and March this year, Australian coal prices have moved up from $54.55 per tonne to $86.37 per tonne.
 
Tata Power is considering domestic coal because of the Supreme Court order that ruled against allowing compensatory tariffs on account of changes in international regulations. The company told analysts, among all options, it would look at whether blending domestic coal can cut losses at its Mundra power plant.
 
“The viability of using domestic coal is being evaluated as imported coal prices are high,” said an executive of Essar Power.
 
The company, according to sources, has written to the regulatory authorities to modify coal usage at the Salaya power plant in order to be able to use a mix of domestic and imported coal. At present, imported coal meets the plant’s requirements.
 
Coal India Ltd (CIL) is expected to meet the need for domestic coal. A lot hinges on its capabilities. The company failed to meet its production target in the last financial year, when CIL produced 554.13 million tonnes against the target of 598.61 million tonnes.