Andhra picks Meenakshi Power, Simhapuri for imported coal-based power proj

As the project is to be based entirely on imported coal, there is a risk if latter's prices change

As the central government mulls allowing pass through of fuel cost for the imported coal-based power projects, Andhra Pradesh has gone ahead to tender the project but with a cap on the fuel cost to safeguard consumers from fluctuating global coal prices.

In a recent bidding for a 1000 Mw imported coal-based power project with 100 per cent imported coal, the state received winning bids from Meenakshi Power and Simhapuri Energy at the rate of Rs 4.5 per unit for 600 Mw. Simhapuri would be building a 400 Mw power plant, while Meenakshi will build a 200 Mw plant.

Officials in the state government's energy department said that the capping was indexed to the Indonesian coal price. "A ceiling price was formulated as per the Indonesian index and fuel rates were benchmarked. Over and above, the pass through of fuel cost was not allowed," said a senior official.

For bagging the projects, bidders have to quote the fixed and the variable component of the tariff. The major cost components of variable tariff are fuel cost, change of law in international coal markets and associated cost. The bidder quoting the least tariff bags the project.

Some industry players perceive the tariff as a risk because a bidder would take the hit if there is fluctuation in the imported coal prices and foreign exchange. "Putting up an imported coal-based power plant does not make sense when the central government is pushing for domestic coal. It would also push up the average tariff of the state," said a senior executive in a power company. Karnataka had scrapped the bidding process after similar tariffs were received, he added.

They argue that with generation capacity of domestic coal-based power plants not being utilised optimally, the state should not opt for imported coal-based capacity.

State government officials, however, maintained that the tariff discovered was in line with the prevailing power rates. "Our average cost of power procurement from hydro and old thermal units is around Rs 4.10-4.30 per unit. So a tariff closer to Rs 4.5 per unit is feasible for a  coastal state like Andhra Pradesh," said a senior state government official.

In the past, the tariff discovered was over Rs 4 per unit in long-term power purchase tenders issued by Kerala and UP. 

Under the draft guidelines for imported coal-based Ultra Mega Power Plants (UMPP), the Union government plans to allow pass through of fuel cost in the final consumer tariff.

The proposed cost pass through would be both in case of reduction and escalation of coal cost. The power seller will be required to cut tariff when coal costs fall.

Imported coal-based Tata Power UMPP and Adani Power power plant at Mundra are in a long-drawn battle with power procuring states for allowing a pass through of cost escalation due to change in law in the imported coal market and the subsequent price increase.