According to India Ratings and Research (Ind-Ra), most of the operating thermal power entities, after seeing better coal availability over FY14-FY17, have now begun to face lower domestic coal availability. Hence, the research agency said, there is a possibility of an increase in the reliance on imported coal and thus susceptibility to volatility in imported coal prices. Though most of the government-owned regulated entities have coal linkages or additional coal supplies through memoranda of understanding, in Ind-Ra’s opinion, their ability to secure a continued coal supply could come under pressure.
India’s coal-based electricity generation has grown higher than domestic coal production since FY11, with the balance coal requirements having been met through imported coal. However, the ability of the generators to schedule power basis imported coal has reduced, given the high imported coal prices and the emergence of alternative sources of energy.
Coal-based electricity generation increased at a healthy pace of 5.4 per cent yoy in FY17 and 5.6 per cent yoy in 1HFY18, while the imported coal usage fell 18 per cent yoy each in FY17 and 1HFY18 to 66.1 million tonnes and 28.4 million tonnes, respectively and domestic coal production has not increased at the same pace as coal based generation. Specifically, the growth in coal output slowed down to 3.2 per cent yoy in FY17 and 1.5 per cent Y-O-Y in 1HFY18.
This increase in generation, despite muted growth in domestic coal production and decline in imported coal, has been a combination of the following factors:
• A decline in the inventory available at the plants
• Higher efficiency plants resulting in lower specific energy consumption (FY16: 0.69kg/kWh, FY15: 0.67kg/kWh, FY14: 0.65kg/kWh), and
• A higher share of domestic coal production directed towards the power sector (FY16: 80.2 per cent, FY15: 77.2 per cent, FY14: 74.7 per cent).
Given that the electricity generation increased while the coal production increased marginally during 1HFY18, there was a decline in coal inventory at the power plants to 7.9 mmt in October 2017 from 22.8 mmt in September 2016. This has led to an increase in the number of thermal power plants reporting critical/super critical coal stock levels.
Therefore, Coal India’s ability to ramp up its output would hold the key to mitigate the coal availability risk, since the company produces nearly 80 per cent of the domestic coal. In a situation wherein domestic coal output does not increase at the same pace as electricity generation, there could be increased recourse to imported coal as there are limits to the draw down on the inventory and the efficiency improvements are possible only through lower specific energy consumption. This Ind-Ra believes will lead to lower buying interest from distribution companies (discoms), given the availability of cheaper power from competing sources as the cost of power generation using imported coal is higher than domestic coal. This would pressure the plant load factors (PLFs) of coal-based thermal plants and increase per unit cost, thus making the overall cost per unit for the discoms to go up. Discoms will continue to pay fixed charges basis availability of plants while as PLFs decline, the fixed cost absorption
per unit will also fall thus increasing the overall cost per unit.
An overall increase in the per unit cost will defeat the objective of lowering the power procurement cost for discoms and could lead to a greater demand by discoms to renegotiate power purchase agreements, observes Ind-Ra.