Falling coal weakens case for higher power tariff for Adani, Tata Power

Global coal prices have come down to $46 a tonne, the lowest in five years

Power generation costs for projects that depend on imported coal will decline by a massive 35 per cent, in the wake of global coal prices coming down to $46 a tonne, the lowest in five years. This also weakens the case for a compensatory rate regime in the sector.

Tata Power’s ultra mega power project (UMPP) and Adani’s 1,980-megawatt (Mw) plant, both based in Mundra, Gujarat, could, in fact, look at their generation cost going below the compensatory rate they were asking for.

After Indonesian coal prices were benchmarked with the international market price, Tata and Adani appealed in the Central Electricity Regulatory Commission to grant them compensatory tariff, as the input price increased.

Coal had in 2008 touched $130 a tonne. Since then, it has been coming down from $80 a tonne in December 2013 to $50 in December 2014. At an exchange rate of Rs 62 to a dollar, the landing price of coal in India is currently in the band of Rs 2,700 to Rs 3,000 a tonne.

“Persisting at this level of around $50 a tonne, this could put to rest the argument of compensatory rate started by Tata Mundra UMPP and Adani’s plant, based on imported coal,” said a power sector executive.

Tata Mundra UMPP was bid at a levelised tariff of Rs 2.26 a unit, on which it asked for an escalation of 52 paise, claiming a compensatory rate. Adani Mundra plant was selling power to utilities in Haryana at Rs 1.96 a unit and to Gujarat at Rs 1.86 a unit. It asked for an escalation of 43 paise and 71 paise, respectively, for rates in Haryana and Gujarat.

“Ideally, the argument of compensatory tariff stands defeated now. A drop of more than 30 per cent in coal prices takes down the cost of generation by 75 per cent,” said a senior power market expert.

A compensatory rate is added in the levelised one offered by a power producer, and is on account of variable costs such as fuel. The appeal by Tata and Adani in APTEL was stayed by the Supreme Court. A senior power executive said, “Imported coal can be replaced with domestic supplies to some extent depending on the configuration of the power plant and save on cost, since heat value is higher in imported coal.”

In such a situation, those plants banking on a blend of imported coal would benefit.”

The ones which stand to benefit the most are NTPC plants using blended coal. Decline in imported coal prices would not only bring down their cost of generation but improve their running capacity.

An NTPC executive said whatever benefit arises from decline in generation cost would be passed on to consumers.