New Government Push To Run Imported Coal-Based Plants On Domestic Coal

Plans are afoot to provide domestic coal linkages to all imported coal-based power plants and run them largely on domestic fuel in order to prevent global supply shocks from disrupting power generation in India, as per a LiveMint report.

Imported Coal

The country has currently 13 thermal power plants designed on imported coal and are referred to as imported coal based (ICB) power plants. These plants have a cumulative installed capacity of 17,600 MW.

The remaining domestic coal-based plants import coal to supplement their requirements through blending in line with a circular issued by the Centre. Blending requires high grade coal which cannot be substituted by domestic coal.

The Issue

Amidst huge power demand in the months of April and May this year, the ICB generators were unwilling to run their plant on account of high fuel cost. Non-operation of ICB plants in states had put more pressure on domestic coal demand leading to low coal stocks for domestic coal based (DCB) plants and only aggravated the power crisis.

The power purchase agreements (PPAs) for imported coal based plants do not have adequate provision for pass through of the entire increase in the international coal price. At the present price of imported coal, running of imported coal based plants and supply of power at the PPA rates caused huge losses to the generators and therefore the generators were not willing to run those plants.

The government subsequently issued a number of directions under Section 11 of the Electricity Act, 2003 and ordered all ICBs to operate and generate power to their full capacity.

However, the coal stock situation at these imported coal based plants is still under red — seven such plants are running at critical levels of coal stock — just 25 per cent of the required inventory. The move to substitute imported fuel is a step in this direction.

The Plan

With the state-run miner, Coal India Limited (CIL) targeting to achieve 1 billion tonne coal production by 2023-24, linkages for imported coal-based power projects would be considered if power plants agree to move to domestic coal.

“We will have enough fuel to support the entire need of power plants, be it on domestic or imported coal, from next year. If the coal prices remain firm in international market, the shift of imported coal-based projects to local fuel would not only prevent disruptions in supplies but will also assure the fuel at almost 60-80 per cent discounted rates," said an official.

To ensure that the coal supplied to such plants matches imported coal quality, washed coal with low ash content would be made available so that these plants do not need to make major modifications to their configurations.

The changes in linkage coal policy are expected to support a host of power plants such as Coastal Gujarat Power, Adani Power Mundra, Essar Power Gujarat, JSW Ratnagiri, Tata Trombay, GSECL Sikka, IL&FS Tamil Nadu, Coastal Energen, Udupi Power, Simhapuri Energy, Meenakshi Energy and JSW Tornagallu.

Draft Coal Logistics Policy

The Draft National Coal Logistics Policy recently released by the Ministry of Coal has argued for import substitution. Most ICBs are located along the coast as it helps them save transportation costs. For coastal thermal power plants, movement via coastal shipping can result in significant cost savings and therefore reduced cost of electricity for consumers.

“As India plans for the ‘1 Billion Tonne Coal’ target and imported coal usage is expected to be substituted, coastal shipping could present a viable and eco-friendly transportation mode for imported coal substitution in coastal thermal power stations on India’s west coast (in states of Gujarat, Maharashtra, Karnataka, Goa, and Kerala)," said the policy.

Coastal shipping presents a viable transportation mode for imported coal substitution for coastal power stations on the western coast. Imported coal substitution by domestic coal can create opportunities for new linkages and utilisation of coastal shipping for coal movement from the eastern to the western coast of the country.