Thermal power rates to stay under stress

Fuel security concerns and additional investments to be made by thermal power producers on meeting the latest emission norms is set to take away the advantage of a lower goods and services tax of 5 per cent on coal.

Despite the lowest slab of GST on coal, thermal power would be costlier in the days ahead and, thus, more uncompetitive against solar power, where rates are falling to record lows. All coal-based power stations in the country need to invest Rs 1-1.2 crore per Mw capacity for installing  pollution  control  equipment  to  comply  with  the  latest norms  notified  by  the  ministry  of  environment. The deadline is December this year. High ash content in coal affects thermal power plants' emissions. “This  might  lead  to  further escalation  in  tariffs (rates),  affecting  their  competitiveness  with  other  conventional  and  renewable  power sources,” goes a report by CARE Ratings.

According to a report of the Central Electricity Regulatory Commission for 2015-16, the cost of solar energy-based generation was Rs 2.42-4 a unit; electricity from coal-based generation was priced at Rs 2.63-5.70 a unit.

“Lower GST is clearly not an advantage when thermal power producers have to make extra investments to meet stricter emission norms. Most of the thermal power plants in the country are underutilised because of weak power demand and are facing acute competition from cheaper solar power,” said a senior official with an independent power producer. 

Thermal  capacity  addition  is being impacted by growing  fuel  availability concerns.  While significant gas-based  capacity  is  idle due to  non-availability  of this fuel,  coal  supplies  are restricted  to  around  65 per cent  of  the  requirement  of  thermal plants based on this, leading to increased dependence on imported coal and high generation costs. 

“Coal  imports  rose  from 43.08 million tonnes in 2006-07 to 199.88 mt in 2015-16. Most  of the Indian  coal  reserves are  of low  calorific value  and  high  ash content. This  leads  to  burning  more  coal  for  every  unit  of  electricity  generated,  which  also  pollutes the environment,” stated the CARE report.

Poor financial health of electricity distribution companies (discoms) has hit their purchases of power. Mounting aggregate technical & commercial losses, coupled with operational inefficiencies of the state discoms, has led to their debt dues reaching a combined Rs3.95 lakh crore.

Weak industrial demand for power saw the average plant load factor of thermal power producers, both coal and lignite based, tank to an all-time low of 59.88 per cent in 2016-17 from 77.5 per cent in 2009-10. 

CARE Ratings expects the  thermal power industry and its allied industries to  remain subdued for  the  next  two  years in terms  of  capacity addition, given  the government’s thrust  to  meet  a substantial part  of  its 'Mission  2022'  renewable energy targets by  2019.