Mumbai, April 25 (Representative) Average merchant power tariff sold on exchanges is expected to be over Rs 6 per unit for the current quarter largely on the back of high prices of imported coal due to the geopolitical uncertainties and significant growth in power demand, says Crisil Rating. According to the ratings agency, this will be the highest average for any quarter in the last five fiscal years. “Tariff for merchant power sold on exchanges may average more than Rs 6 per unit this quarter, the highest for any quarter in the past five fiscals, driven by high prices of imported coal due to the geopolitical uncertainties stemming from the Russia-Ukraine conflict, and healthy growth of 8-9 per cent year on year on power demand,” it said in a statement issued here. Crisil noted that in March 2022, merchant power prices went through the roof to Rs 8.2 per unit as against an average of Rs 4 per unit in the previous 11 months last fiscal. “The spurt was due to the Russia-Ukraine conflict, which heightened fears of coal shortage as Russia is the third largest exporter of non-coking coal, with nearly 15 per cent share in global exports. Imported coal prices were, in fact, up 50 per cent in March as against the previous 11 months,” it noted.
Sharing his views, Ankit Hakhu, Director, CRISIL Ratings, said that the international coal prices have eased from the March peak but may remain over USD 90 per tonne this quarter if the conflict prolongs. “Meanwhile, demand at power exchanges is on the rise. In March, the volume of transactions in Indian Energy Exchange was up 16 per cent on-year across market segments (overall volumes were up 38 per cent on-year in fiscal 2022). In the current quarter, early onset of summer and a recovering economy will keep power demand high. With growing power demand and coal prices high, we expect merchant tariffs to remain over Rs 6 per unit on average this quarter,” he added. Crisil opined that the high merchant tariffs, together with increasing volumes at exchanges, will benefit 34 GW out of a total 73 GW private coal-based capacity in India, it opined. The remaining private capacity is either fully tied up with discoms or is likely to face coal shortage, it said. Nearly 100 per cent of the power sold on exchanges by the coal-based gencos is produced using either imported coal or domestic coal procured through e-auctions, whose premiums are linked with imported coal prices.
“Consequently, merchant power tariffs have a high correlation with imported coal prices and have, along with coal prices, been on the rise since August last fiscal,” the agency said. Crisil, however, noted that while, high merchant rates are a positive for power generators at large, only some will be able to benefit this quarter, based on their location and ability to sell power on exchange. “At the other end, coal shortage will shut out 15 GW of private coal-based capacities as these are either in stress and lack adequate working capital to pick up domestic coal at market rates, or rely extensively on imported coal, which will be in short supply,” it said. According to the agency, imports declined by over 40 per cent in fiscal 2022 and inventory at these plants is also at less than critical levels . A further 24 GW is fully tied up with discoms and hence may not be available for sale on the exchanges, unless approved by the discoms. “Our estimates remain sensitive to resolution of the geopolitical crisis in Europe, which could lead to a significant drop in imported coal prices, or any further Covid-19 wave, and ensuing lockdowns, that could dampen power demand,” it added.