Coal price hike to up power generation cost by up to 10 paise

The recent hike in domestic coal prices would result in increase in the cost of generation for coal-based power plants by up to 10 paise per unit, domestic rating agency ICRA today said.
The coal price hike announced by state-owned CIL is likely to result in an increase in cost of power procured by discoms, ICRA said in a statement.
"ICRA estimates that the recent domestic coal price hike would result in an increase in cost of thermal generation by 9-10 paise per unit," ICRA Ratings Senior Vice President Sabyasachi Majumdar said.
Given that coal-based generators account for about 60 per cent of the total power procured by discoms and assuming a partial pass-through by other independent power producers, this translates into about 6 paise per unit increase in power procurement cost for discoms on an all-India basis, Majumdar said.

"In turn, assuming the average AT & C loss level at around 25 per cent in the country, we estimate the impact on cost of power supply per unit sold and retail tariffs (assuming full pass through by state regulators) at around 8 paise per unit or 1.4 per cent tariff hike," Majumdar added.
Coal India (CIL) recently revised the prices of pit head run-of-mine (ROM) prices of all grades of non-coking coal.

The price of thermal grade coal for supply to power sector has been increased by about 15-18 per cent and this in turn is estimated to increase the cost of generation for coal-based power plants by about 9-10 paise/unit, as per ICRA estimates.

Power generating companies/independent power producers (IPPs) which have cost plus based Power Purchase Agreements (PPAs) would be able to pass on such increase in cost of fuel to their off-takers, which are mainly state-owned distribution utilities.
For domestic coal-based IPPs which have competitively bid based PPAs, the impact on the margins will be dependent on the extent of escalable energy charge component in the tariff structure.
From a distribution company (discom) perspective, ICRA notes that the increase in the price of coal by CIL is a negative development as this would increase its cost of power procurement and in turn, the overall cost of supply.

"Despite the hike in domestic coal prices, power generation based on domestic coal still remains the cheapest source of power supply in India...," Majumdar said.