Power ministry's coal tolling policy languishes as State discoms stay away

The policy was announced in 2016; has so far seen only two states float tenders under the scheme

The power ministry’s coal tolling policy has failed to pick up pace even two years after its announcement, with state power distribution companies (discoms) showing little interest in the initiative.

The policy, announced in 2016, allows the utilisation of linkage coal of a state power generating station by any independent private power producer (IPP) for supplying power back to the same discom.

So far, only two states, Maharashtra and Gujarat, have floated tenders under the scheme. Industry officials and experts say the policy does not provide discoms any incentives.

“Not many states will be willing to disturb operations at their generating companies and use that coal for an IPP,” said a power consultant. 

Ashok Khurana, director general, Association of Power Producers, said, “States may not come forward to utilise the scheme when they can save 40-50 paise per kwh by buying from pithead plants.”

Besides lack of interest from states, the policy also struggles with transmission risks and lower ceiling tariff, making it less attractive to private power producers.  “Coal tolling through independent power producers (IPPs) involves setting a ‘ceiling’ tariff, and the landed cost of IPPs’ power, including the transmission charges at the state periphery, have to be lower than that. In case, such ceiling tariff is set too low, there will be few takers for such bids,” said Satnam Singh, director, CRISIL Infrastructure Advisory. 

He added, “Given that the responsibility of transmission/open access procurement is with the IPP, coal tolling faces the general issues related to open access and transmission corridor availability in the power sector.” 

According to the Industry data, state discoms across the country have access to about 90 million tonnes per annum of coal, which currently is used by plants that have at least one unit older than 20 years and some are located away from the main pithead. To put the number in perspective, 90 mtpa is enough to fuel 15,000 Mw of power capacity. 

Singh from Crisil added, “Due to absence of a strictly enforced merit order dispatch, the high variable cost generating stations continue to be dispatched, thereby creating no incentive for the generating company to go for coal tolling.” 

However, other states might look at the policy following in Maharashtra and Gujarat’s footsteps. 

“Other states like Haryana and Punjab and a few southern states are at different stages of considering this policy. It may take some more time, as it involves transfer of coal to another entity,” said an official from a private power company on the condition of anonymity.

Even after the tender process, coal tolling as a policy may take longer to reach execution. In Gujarat, for instance, GMR Chhattisgarh Energy is supplying 500 Mw power to Gujarat Urja Vitran Nigam under this policy. The company won the tender in November, but it started supplying power only in January.

What’s coal tolling policy

Announced in 2016, it allows the utilisation of linkage coal of a state generating station by any independent private power producer for supplying power back to the same discom

• Around 40 Gw thermal capacity underutilised for want of fuel supply, PPAs
• High-cost state gencos, with total capacity of 18 Gw, were expected to use the policy
• Policy was expected to save Rs 25 billion for these gencos
• So far, only Maharashtra and Gujarat have floated tenders under the scheme
• Source: Analysts’ reports, industry estimates

Source: Analysts’ reports, industry estimates