New rate and cess increases would erode the benefit to power plants from surplus coal availability.

The recent freight rate increase by Indian Railways for coal and the clean energy cess doubling to Rs 400 a tonne for coal has offset by 15p a unit of power of the earlier total benefit of 35p a unit from its surplus availability and reduction in price in both the domestic and international markets.

Executives at the country’s largest power generator, NTPC, said after accounting for all costs, the price of power would increase by close to 25 per cent on an average for all its units. “For pithead plants, the fuel price escalation is 12-25p a unit and for non-pithead, 28-40p a unit of power produced,” said one executive, requesting anonymity. Pithead plants are in the vicinity of a coal mine.

Adding: “This might disturb the merit order of states procuring power from NTPC. They might prefer first the sources offering cheaper power, such as plants with captive mines, their own plants, etc.”

The company’s energy cost came down to Rs 1.69 a unit in February, from Rs 2.03 a unit a year before. The decrease in price was due to rationalisation of linkages and reduction in imported coal consumption. NTPC plants had to back down 12.9 per cent of generation capacity owing to lower demand in FY16, compared to 8.9 per cent in FY15.

In March this year, the government for a third time in a row increased the cess on coal, lignite and peat production, to Rs 400 a tonne, to fund clean energy projects. As this increase in coal’s price comes under the ‘change of law’ regulation of the Electricity Act and Tariff Policy, any change in price would be reflected in the final power rate. By industry calculations, this would mean a change of 12-15p a unit in the final power rate. The power industry consumes close to 500 million tonnes of coal a year and close to 800 billion units of electricity pass on the impact of increased price of coal to consumers.

Source: Business Standard