Tata, Adani plants may get to sell on power exchanges amid coal crisis

The two power units in Gujarat using imported coal -- Tata UMPP and Adani Mundra -- might have a chance at revival as the Centre opens up merchant power sale for them in the middle of domestic coal supply shortages.

The two units have been in a constant tussle with five states to which they sell power over the compensation due to higher imported coal prices.

It is expected that Tata Power and Adani Power could make gains on selling on the power exchanges, especially since they are not selling power to any state on a long-term basis due to no clarity on tariffs. 

The current prevailing rates at the Indian Energy Exchange (IEX), the country’s largest power exchange platform, are more than double the tariffs at which Adani and Tata pledged to sell power.

Officials in the Ministry of Power said the two Mundra units had imported coal stocks of more than 15 days. They should either be allowed to sell power on the exchanges or the power should be bought by the states. Gujarat is one of the states facing a power supply deficit. It is one the top states buying spot power on the exchanges, said a person in the know.

Power plants located in the Western and Northern states are having the lowest domestic coal availability of six days’ stocks.

There was no official order from the ministry on allowing the two companies to sell power in the open market till print time. The scrips of Adani Power and Tata Power closed higher by Rs 4.45 and Rs 1.9, respectively, on Monday.

The Adani Power project in Mundra (1,980 Mw) has a power-purchase agreement (PPA) with utilities in Gujarat and Haryana at a levelised tariff of Rs 2.35 per unit (Kw/hour). Tata Power’s 4,000 Mw ultra-mega power plant (UMPP) has PPAs with Gujarat, Rajasthan, Maharashtra, Punjab, and Haryana to sell power at Rs 2.26.

The ministry is pursuing these five states to allow the two units to sell in the spot market on the power exchanges. Officials said Gujarat had agreed to power sale from the units on the exchanges “for a limited period”. There has been no approval from the others. Apart from Gujarat and Haryana, all other states are non-BJP ruled.

Following an order by the Indonesian government increasing its coal benchmark price in 2010, the landing cost of coal in India increased. Adani and Tata, which were importing from Indonesia, asked the Central Electricity Regulatory Commission (CERC) to grant them “compensatory tariff” for the increased fuel cost. This would have been passed through on the final power rates.

The two companies since then have been in a legal and regulatory tussle with its buyer states to allow escalated tariffs. After several rounds of petitions in the CERC, Supreme Court, and Appellate Tribunal for Electricity, Gujarat last year decided to revise the terms of its PPA with the imported coal units in the state, including the two Mundra ones.

The state, however, reversed its decision in July 2020 and said the earlier government resolution allowing these developers to charge higher tariffs “now stands cancelled”. It said it would now sign supplemental PPAs with these units on a “case to case basis” over and above the existing PPAs.

The two developers have been in talks with Gujarat and the other four procurers to agree to the revised tariffs under the supplemental PPA. 

Due to scarcity of coal, several states are now lining up in the spot power market because they fear shortages in coal supply. Prices in the spot day ahead market touched an average of Rs 6.59 per unit while the highest market clearing price received on Monday was Rs 16 per unit. 

The ministry last week also allowed power units to import coal. This comes within months of the Centre declaring that India would have no imported coal and the domestic coal capacity would meet the growing demand. Due to a delayed and staggered monsoon, peak power demand in the country touched a record high of 200 Gw in August.