Why Power Tariffs Of Imported Coal-Based Plants Won't Spike As Much This Summer
Imported coal-based power producers will have to run at full capacity to avoid severe outages after India invoked Section 11.
Unlike last year, the drop in international prices is likely to help power companies reduce variable costs for imported coal-based plants that will run at full capacity to manage the peak demand during summer.
Anticipating a surge in April, the central government on Monday invoked Section 11 of the Electricity Act from March 16 for three months. That means imported coal-based companies will have to run at full capacity to avoid severe power outages that consumers faced last year. In case of stressed projects under the NCLT process, resolution professionals will ensure to make these functional.
Peak electricity demand is expected to hit 240 GW this summer after it touched 210 GW on Jan. 19 and 209 GW on Feb. 17 according to Posoco—Grid Controller of India Ltd. The peak shortage in February till date was 1,500–2,000 megawatts.
Drop in commodity prices would help the power developers cut tariff by Rs 2–3 per kilowatt-hour in comparison to last year when the section was invoked, according to analysts.
The price of 6,000 kilo calorific value of coal has dropped from the high of $460 per tonne in September 2022 to $210 per tonne on Feb 24. The drop will reduce the variable cost of power companies, lowering the impact on their financials as compared to last year when the section was invoked in May for five months and then extended till Dec. 31.
Rupesh Sankhe, vice president and power analyst with Elara Securities (India) Pvt., said the tariffs are likely to be cut to Rs 6 per unit compared with Rs 9 per unit last year. Plus, the companies also have the advantage of selling the surplus power on the exchanges.
According to the Central Electricity Authority site, there are at least 17,255 MW of imported coal-based capacity in the country. This will come online from March 16, helping India meet its peak demand. Some of the prominent players whose projects will become operational will include 4,000 MW each of Tata Power Co. and Adani Power Ltd.'s Mundra projects in Gujarat, and Essar Power Ltd.'s 1,200 MW project in Salaya, Gujarat.
Tata Power Chief Executive Officer Praveer Sinha had told BQ Prime early this month that the peak demand this year could surpass 240 GW, given the increased urbanisation and demand from the industrial and commercial segment as well as penetration of electricity in rural areas.
Tata Power operated its two units of Mundra Ultra Mega Power Project till Dec. 31 under Section 11 when the higher cost was a pass through. Since then, it had been operating just one unit of 600 MW as part of an agreement with the Gujarat Urja Vikas Nigam Ltd.
The fixed charge will be as per the power purchase agreements or as has already been agreed mutually between the generating company and the procurers, according to the government notification.
The PPA holder shall have an option to make payment to the generating company according to the benchmark rate worked out by the committee or at a rate mutually negotiated with the generating company.
These plants will supply power in the first instance to the PPA holders. Any surplus power left thereafter or any power for which there is no PPA will be sold in the power exchanges, it said.