The Ministry of Power (MoP) has come to the support of power plants designed to run on domestic coal by proposing a methodology to calculate the compensation on power tariffs resulting from the use of costlier imported coal.
The decision was taken by invoking Section 11 of the Electricity Act, thereby allowing these plants to pass through the increased cost on to power tariffs.
The prevailing power purchase agreements (PPA) between power generation companies (gencos) and distributing companies (discoms) do not allow such a facility.
This is not the first time MoP has implemented Section 11 this year. Recently, it was used to revive the power plants based on imported coal to resume operations at full capacity in an attempt to meet elevated power demand in the country.
Assurance of cash flow
The directive came as a major relief to the gencos whose exiting tariff determined under Section 63 does not permit them to revise the existing rates.
These plants were facing uncertainty about the prospect of importing coal which are at record-levels without knowing its impact on the existing tariff. MoP has informed that this facility will be in place till 31 Mar’23.
Moreover, the power gencos have been assured of adequate cash flow by arrangement of payments on a weekly basis.
Under this provision, the gencos would receive 15% of the payment for power sale from the discoms within a week from the issuing date of provisional bill. In case of default, they can opt to sell 15% of the power in the power exchanges.
Critical inventory levels call for imports
Coal inventory at power plants declined at a faster rate during Apr but has remained largely stable during May. However, there is an anticipation of further drop during the upcoming monsoons when supplies are generally disrupted.
In view of the emergent situation due to rise in demand and non-adequate supply of domestic coal, MoP has directed power plants to import coal for blending.
Besides, provision of penalty in form of curtailment in coal supply has also been proposed in case the plants fail to comply with the directives.
As per Central Electricity Authority, imports recorded by plants for blending jumped 154% y-o-y to 2.17 mnt in Apr as against 0.85 mnt in Apr’21. The trend is expected to continue due to the likelihood of more plants resorting to imports to avoid penalty.
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