States use the tariff channel to increase electricity supply; four states allow fuel cost pass-through

Amid a worsening electricity shortage in the country, several state electricity regulators, including those in Karnataka, Tamil Nadu, Gujarat and Maharashtra, have invoked or will soon use a d urgency to increase electricity supply by allowing higher fuel costs to be passed on. Other states may also announce similar plans in the coming days as their power shortage peaks tend to increase. Additionally, a few states, including Maharashtra and Tamil Nadu, are signing new short-term power purchase agreements with private power plants to ride out the crisis. The core of the plan is to allow fuel costs to be passed on from imported coal-based units, including some as part of the insolvency resolution process. The Center has also asked the electricity generators it owns, namely NTPC and DVC and even public sector power plants, to use an energy mix with 10% imported coal – against 4% currently – to increase the production. These state-run gencos could also have the opportunity to recoup at least some of the inflated fuel costs through rate increases, sources said.

These measures come as the electricity shortage in the country has recently crossed the threshold of 100 million units (UM) per day and threatens to reach more precarious levels. Out of 173 power plants with or without a pit head in the country, 81 were operating with coal stocks of less than 7 days, as of April 18. This means that their fuel stocks barely represent 25% of the normative need.

The combined capacity of imported coal-fired power plants (ICBs) in the country is 20,296 MW, but of these 3,566 MW are not operational due to the scarcity of coal and the projects have been admitted before the National Company Law Appellate Court. Even among operational ICB units, the plant’s average load factor was just 26.2% in March. The rate increases are thought to be encouraging these units to generate far more electricity than they do today, and many could be approaching their peak capacity utilization levels, the sources added.

According to Rahul Raizada, Executive Director of PwC India, the PLF of ICB units could reach at least 50%, as they are allowed to pass on higher fuel costs “Given the peak of shortages in the majority of states, it is likely that at least ICB’s 16,000 MW operational capacity could be fully utilized if the coal situation persists,” Raizada said.

Against a level of 50-60 dollars per ton a year ago, the cost of imported coal stood at around 160 dollars per ton in January; it has since risen to the current level of around $250/tonne. India’s ICB power plants import coal mainly from Indonesia, Australia and South Africa. According to analysts, given the Russian-Ukrainian crisis, imported coal prices will remain high at around $180-200/ton for the next 8-12 months.

Gujarat Department of Energy sources said Essar Power Gujarat would be allowed to pass on full fuel costs until December 2022 if imported coal prices remained above pre-Covid levels.

A source from the Tamil Nadu Electricity Board (TNEB) said that the ICB power plants in the state have been allowed to supply power as per contracted escalation (of fuel costs). “We have just signed an agreement with one of these units for short-term supplies where rates are discovered through tenders,” the source said. He said the tariff increase will be allowed for any increase in the landed cost of imported coal above the $120/tonne threshold.

Daily power consumption in Tamil Nadu has risen from 300 million units (MU) last month to 320 MU now, and by the end of April it could exceed 390 MU. “We are currently able to meet peak demand. Wind power generation is also increasing. We are confident of avoiding a serious power crisis,” he said. 5.1-5.2 per unit. The supply of another 100 MW with the company would soon be blocked, he added.

Maharashtra, the most industrialized state, is currently facing a peak power shortage of around 2,500 MW and is exploring options to connect to more power stations. “We are also in talks with NTPC’s Ratnagiri unit to get additional power,” Waghmare said, adding that the tariff in this case will take into account the variable cost of fuel Rs 6-7/unit.

However, the secretary said, companies will have to file a petition with the national electricity regulator for the increase in electricity tariffs.

Separately, Mahagenco, the state power producer, placed an order for 0.4 million metric tons of imported coal to be blended with domestic coal. Meanwhile, the power shortage peaked at 26.13 mu in Andhra Pradesh on April 12, while in Madhya Pradesh the deficit was 17.61 mu. Maharashtra (15.39 mu), Punjab (6.38 mu) and Haryana (6.51 mu) also face large energy deficits.

B. Sridhar, Andhra Pradesh’s energy secretary, told FE last week that “electricity generated from imported coal would always be cheaper than electricity sold on exchanges. Spot prices on Indian Energy Exchange hit a high of Rs 18 per unit before IEX capped the price at Rs 12/- to prevent independent power producers from making windfall gains from the crisis.
The Uttar Pradesh government has reportedly given its main approval to all state-owned generation companies – state-owned as well as private producers – to step up coal imports and ensure adequate fuel stocks during the ‘summer. According to UPPCL sources, the price difference between domestic and imported coal could be allowed as a pass-through if imported fuel remains more expensive.

Furthermore, in a recent communication to the gencos, the Uttar Pradesh Power Corporation (UPPCL) reiterated that coal procurement should be done through a transparent and competitive process to identify a reasonable market price, which should then be sent to the UPPCL. For approval.

Earlier, UP’s state-run genco Uttar Pradesh Rajya Vidyut Utpadan Niga, which operates five units and has a total capacity of 4,500 MW, issued tenders for the purchase of 2.25 million tons of imported coal, but the state electricity regulator blocked it on Monday. The regulator has asked for clarification on whether imported coal, which has a high higher calorific value, can be used in UPRVUN plants, as most plants have old and depreciated units.

Maharashtra Energy Minister Nitin Raut said on Tuesday, “The state government has launched tenders to import 0.1 million tonnes of coal. The shortage of coal is also due to the lack of rakes (trains). We need 37 rakes a day, but we only get 26. Each rake can carry 4,000 metric tons of coal. Sources said Mahagenco is placing orders for an additional 2 million tonnes of coal for which negotiations are ongoing.

The Maharashtra Electricity Regulatory Commission (MERC) meanwhile has allowed four electric utility companies to charge Quarterly Fuel Adjustment Charge (FAC) in bills. This means that the bills of consumers residing in Mumbai could increase by 3-10%. FAC is a variable charge that utilities apply to bills based on the variable price of fuel or coal. This amount has not been charged to consumers for the past two years during the Covid19 pandemic. MERC has written to BEST, Adani Electricity and MSEDCL, giving them the option of requesting FCC’s collection for each quarter, for increased fuel costs due to domestic coal shortage.

(With contributions from Nayan Dave in Ahmedabad and Nanda Kasabe in Pune)

Rosemary C. Kearney