New coal linkage policy to give state utilities more room for innovation

Coal ministry last week proposed a policy framework for long-term linkages that will come with committed offtake of power generated

Power projects with generation capacity of 41,000 Mw are likely to get assured coal linkages and power purchase agreement (PPA) soon. The Union coal ministry had proposed the policy framework for long-term linkages last week. This is expected to address the issue of offtake of power as the coal linkages from states will now come with committed offtake.

“The policy framework envisages assigning coal linkages to the states, which would in turn invite competitive bids for procurement of power and allocate linkages to the lowest successful bidders (based on cost of power). Besides, projects, which already have PPAs but are without linkage, can participate in auction but will not be allowed to recalibrate their tariff under existing PPA,” said an official.

According to the power ministry’s data, of the 41,000 Mw, power projects with generation capacity of 26,000 Mw are with no firm PPA. This includes those partially tied up and 15,000 Mw with no fuel supply.

Kameswara Rao, partner, PricewaterhouseCoopers, said the policy would help commissioned private power plants lacking long-term coal supply arrangement, but its greater impact is in state utilities taking ownership of new power procurement to meet future demand growth.

“The direct cost savings will be small as this auction does not bring efficiency into coal production. It is expected that the state utilities will structure the procurement in an innovative way, such as aimed at industrial clusters, to secure the most competitive bids,” he added.

Ashok Khurana, director-general, Association of Power Producers, hoped that allocation of linkages base on lowest tariff would ensure linkage along with assurance of power off-take.

However, to ensure that the coal is put to most efficient use, the current power ministry’s dispensation of predetermined SHR (station heat rate, an efficiency parameter of coal conversion) in bid documents would need to be discarded.
COAL LINKAGES

• Power projects of 41,000 Mw to get assured coal linkages and power purchase agreement
   
• The policy framework envisages assigning coal linkages to the states, which would in turn invite competitive bids for procurement of power and allocate linkages to the lowest successful bidders
  

 

Projects, which already have PPAs but are without linkage, can participate in auction,  but will not be allowed to recalibrate their tariff under existing PPA
 

State utilities hope to secure the most competitive bids
 

Trigger is adequate coal availability in the country