New Delhi, May 10 (Mayank Nigam) Importing expensive coal to make up for shortfall in domestic production and meet fuel shortage at thermal power plants is likely to increase cost of supply for discoms by 4.5-5 per cent in financial year 2022-23, according to a report by research and rating firm ICRA. With a spike in power demand and insufficient stock of coal at thermal power plants, the Power Ministry last week directed all states and Gencos based on domestic coal to import at least 10 per cent of their fuel requirement for blending with domestic coal and meet the growing demand for electricity.
The directive issued under Section 11 of the Electricity Act stated that all imported coal-based power plants shall operate and generate power at their full capacity to meet the growing demand. The Power Ministry had in December 2021 issued an advisory to the state power producers to meet their coal requirements through blending of imported coal to the extent of four per cent. ICRA in its note on Tuesday said that measures directed by the Power Ministry to ease the power supply constraints through coal imports is thus likely to considerably increase the coal import dependency for the power sector from about four per cent in FY2022 to about 12-13 per cent in FY2023. “The higher share of imports for thermal generation under a pass-through arrangement as directed by the MoP (Ministry of Power) is further expected to lead to an increase in the cost of supply for state discoms by 4.5-5.0 per cent in FY2023 at an all India level, considering the increase in the share of imported coal and coal price level at USD 110 per MT for coal GCV of 4200 kcal/kg,” said Girishkumar Kadam, Senior Vice President and Co-Group Head – Corporate ratings, ICRA.
The rating agency noted that in terms of coal import dependency for the power sector, the share of coal imports in the overall coal requirements for the power sector declined to about four per cent in FY2022 against that of eight per cent in FY2021, amid the increase in international coal price level by more than 150 per cent over the last 12-month period (Indonesian coal price index) and challenges faced by the IPPs to pass on the fuel price cost increase to the distribution utilities (discoms) under the PPAs (power purchase agreements). With a sharp increase in coal price levels internationally over the past 14 months, the variable cost of generation for imported coal-based power projects is estimated to have increased by more than Rs 3.0 per unit between March 2021 and May 2022, it said. “The estimated increase in the cost of supply for the discoms amid the higher share of coal imports to meet the demand is likely to increase the cash gap per unit for discoms at the all India level to 68 paise per unit in FY2023 against 50 paise per unit estimated earlier. “This is considering a five per cent increase in the cost of supply and an average tariff hike of 4.5 per cent for the discoms at the all-India level,” said Vikram V, Vice-President and Sector Head – Corporate ratings, ICRA.