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Tariff Hike for Conventional Power Inevitable


Seems that our coal fired thermal power plants the lifeblood of Indian power sector, will no longer be able to supply power at the same old affordable price.  The sequence of events happening in the coal industry and its influence on the power sector in the past few months is a definite indication that the long averted hike in power tariffs in our country could no longer be avoided. Well! Certain regions of the country have already started to address this issue by eventually enforcing the inevitable price hike.

Coal India’s recent decision to switch to the internationally accepted gross calorific value (GCV) based pricing mechanism beginning 2012 against the long practiced useful heat value (UHV) based pricing mechanism will have a direct impact on the power sector as they would have to address the 25% increase in the cost of power production due to the revised coal pricing standards. Given the fact that the power sector is yet to revive itself from the hard blow due to the 40% hike in coal price last year, this additional 25% is likely to cause mayhem for the power sector in the days to come

If the coal price revision is going to make the situation bad for the power producers in the forthcoming days, a coal crisis (assuming there might be a repeat of October 2011 scenario) will turn bad to worse and worse to its superlative. The Coal Ministry’s announcement that it would allocate additional quantity of coal to power sector from the e-auction quota to ease the coal crisis won’t sound appealing anymore. Around 10 per cent of the total coal produced by the state-run Coal India shall be sold through e-auction, but that would be at “spot market price” – something that would never be of viable proposition to the power producers as the burden of cost will cripple the power producers.

With domestic coal price all set to complicate the situation of power producers, the soaring imported coal price is not going to spare the power sector. While power producers using domestic coal are seeking revision of tariffs quoted while bidding for the projects due to the sudden revision in coal price, the power producers using imported coal have gone a step ahead to directly make a representation to the power ministry and the prime minister. In both cases, the promoters are arguing that their projects will become unviable in the absence of a tariff revision.

Reliance Power Ltd., Tata Power Ltd, Adani Power, GMR Energy, Essar Group, Jindal Steel & Power Limited and Sterlite Energy are making a representation to the government to address the issue of coal price hike and to make their power projects economically viable. It is to be noted that all these power sector giants together are expected to add 22,000 megawatt by the end of Eleventh Plan (ending in March 2012) which would be 40 per cent of the total addition in this planned period.

The power sector is going through a critical phase and unless urgent policy interventions are made it will result in idling of capacity of existing and upcoming projects. In addition, it will jeopardize the proposed Ultra Mega Power Projects. Besides, any rise in input costs will be a pass through, and thus power tariffs will also go up. With every power producer of thermal power plant seeking a tariff revision, it is time to face the reality – an inevitable price hike.

Though the majority of the power sector is struggling with no end at sight without government intervention, a subset of the power sector might possibly feel happy about the increase in the price of conventional power. Without doubt, it’s the renewable energy sector, which might gain attention and momentum in days to come. Agreed that base load power would still swing the balance towards coal fired power plants; UMPP’s and coal subsidies will surely exist in future but beyond all this, the likelihood of adoption of renewable energy will get a boost.

My blog is almost over, but there is something that I will have to mention here or the blog will be incomplete. Yes.! “Grid Parity”! Two words that are becoming familiar to the renewable energy industry than ever before.

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Narasimhan Santhanam

Thank you for reading this post – hope it was helpful. You can connect with me at narsi@solarmango.com . My detailed profile here and my LinkedIn profile here

Posted in: Climate Change, Coal

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