NTPC contains tariff rise with fall in coal imports, power blending

Govt-owned power generator saw its average nominal tariff rise marginally from Rs 3.30 to Rs 3.38 a unit between 2013-14 and 2018-19 even as Coal India post-tax coal prices rose at a 4.1% CAGR

NTPC Limited

NTPC has succeeded stemming the hike in power tariff over the past five years despite a five per cent increase in annual consumer price index inflation from 2013-14 to 2018-19.

The government-owned power generator saw its average nominal tariff change only marginally from Rs 3.30 to Rs 3.38 per unit during the period even as Coal India Ltd (CIL)'s post-tax coal prices rose at a 4.1 per cent compounded annual growth rate (CAGR).

NTPC's fuel expenses dipped from Rs 1.97 per unit in FY14 to Rs 1.92 at the end of FY19. According to a report by US-based think-tank Institute for Energy Economics & Financial Analysis (IEEFA), no material change in NTPC’s average tariff reflects a deflation in real terms.

The maharatna company's declining real tariffs could be ascribed to 90 per cent decline in coal imports during the last five years, vertical integration of its mining and power business, lower fuel transportation costs and blend of renewable power with thermal power.

NTPC's coal imports plummeted from 10.8 million tonnes (mt) in FY14 to one mt in FY17. As imported coal is more expensive than Indian  domestic coal, the reduction in imported coal has restricted average tariffs from rising in nominal terms (declining in real terms) through reduced fuel expenses.

Moreover, NTPC is reaping fuel costs benefits through vertical integration of power and mining business. In FY19, NTPC supplied 7.3 million tonnes (mt) of coal from its new captive mines initiative with a long-term target capacity of 111 mullion tonnes per annum (mtpa).

Officials of NTPC were not immediately available for comments.

NTPC's competitive power tariffs are also sustained by lower fuel transportation costs. Sixty four per cent of NTPC's coal-fired capacity close proximity mine-mouth which uses conveyor belts to transport coal from nearby mines. This results in reduced transportation costs, a key NTPC  advantage relative to its Indian competitors.
IEEFA estimates transporting coal via Indian Railways over distances of 200 km, 700 km and 1,200 km pushes up variable tariffs by Rs 0.39 per kwh, Rs 1.06 per kWh and Rs 1.66 per kWh respectively.

The maharatna producer's total commercial production rose 17 per cent in the last five years from 233.0 billion units (BU) in 2013-14 to 273.5 BU in FY19. Coal-fired capacity accounted for 95.6 per cent of total generation in FY19 with smaller contributions from NTPC’s gas-fired capacity (2.7 per cent), renewables (1.1 per cent) and large hydro (0.6 per cent).

“Expensive energy imports are detrimental to India’s trade account deficit, undermining the currency, boosting inflation and hence interest  rates and poorly affecting India’s energy security. In IEEFA’s view, prudent planning and investment for emission control implementation is another key area where NTPC is leading, setting the example for other thermal power operators in the country”, the IEEFA report noted.