Power cost to remain high as imported coal prices soar: Ind-Ra

Short-term power prices are likely to remain elevated in the near term on account of a continued increase in imported coal prices, according to rating agency Ind-Ra.

It noted that a large part of the increased power generation would continue to be met through coal-based plants, although coal output is not increasing to the desired level.

This is reflected in low inventory stocks at power plants, and therefore, a part of the increased energy demand will have to be met through imported coal, Ind-Ra said.

In light of the expected high imported coal prices, the short-term power prices in India are likely to remain elevated, it stated.

The speedy recovery in power demand post the second wave of COVID-19 infections, coupled with lower than adequate domestic coal production, led to a reduction in coal inventory levels at various power plants, it said.

The coal production by Coal India increased marginally to 209.2 million tonne (mt) in April-August period of the ongoing fiscal year as compared to 195 mt in the year-ago period, it said.

Furthermore, the coal offtake by thermal power plants increased to 259.6 mt in the five-month period this fiscal year.

The average inventory at thermal power stations increased to 38.6 mt in 2020-21, led by a decline in thermal power generation requirement (2019-20: 28.6 mt), it stated.

However, it said that with an increase in thermal generation requirement, the inventory levels are now correcting, and have reduced to an average of 23.6 mt in the period under review.

As on September 26, 2021, the inventory levels stood at 8.4mt. As per the critical or subcritical levels of coal stock as per the technical criteria, 103 thermal power plants had less than seven days of stock as on September 26, 2021, it stated.

Ind-Ra estimates an increased imported coal requirement likely in second half of 2021-22 as domestic coal production would increase gradually.

Alternatively, in case the PLFs (plant load factor) of imported coal-based plants would continue to remain low due to high international coal prices, Ind-Ra estimates the energy deficits are likely to increase in the second half.

Despite the increase in imported coal prices, coal imports by both central and private sectors have increased by 47 per cent year-on-year and 23 per cent year-on-year to 0.8 mt and 3.1 mt respectively in the fiscal so far. However, imports by state sectors declined.

The increase in fuel cost is a pass through for plants, with majority of the plants following the cost-plus tariff structure. However, coal imports for the plants which run only on imported coal have declined by 17 per cent y-o-y to 11.1 mt in in this fiscal so far, adding to the demand-supply gap, it stated.

The ultra-mega power projects including Adani Powel Plant (APL) in Mundra (Gujarat) and Coastal Gujarat Power Plant (CGPL) witnessed a decline in the plant load factors in the year so far.

APL and CGPL power plants account for 6 per cent of the total operational thermal power capacity, it added.

Hence, a decline in PLFs is leading to increased reliance on buying short-term power, and thus rising exchange prices, it stated.