Coal India's hike in base prices of low-grade coal by 13 per cent to 19 per cent is likely to have a negative impact on the ailing thermal power generators in the country, India Ratings (Ind-Ra) said today.
The increase in prices of the low-grade coal (G6 to G17) is also likely to result in the generators shifting to imported coal, especially by the coastal power plants, the rating agency said in a report.
"This increase will squeeze thermal power generators' operating margins, since they will need to absorb some of the increase in costs. Also, some generators may be forced to reduce their plant load factors to cut losses," it said.
Prices of the most consumed varieties of G11 to G13 grade coal will move up by Rs 100-150 per tonne, translating into an increase of around eight paise per unit.
"This comes over and above the Rs 300 per tonne increase caused by the clean energy cess since 2015 and the recent increase in royalty to 18 per cent from 14 per cent," it said.
Ind-Ra estimates that on an average post the increase in domestic prices by CIL, the fuel will cost around 5.75 per cent more compared to imported stock for coastal plants.
According to the agency, energy charge based on the domestic coal at Rs 1.66 per unit in the current financial year across a sample of power plants on the eastern and western coasts of India, is around the same for imported coal for coastal plants due to their proximity to ports.
Around 10 per cent of the total coal consumed by the thermal power sector in India was imported last year.
On a pan-India basis (apart from coastal power plants), there exists an overhang in electric supply in the short-term market due to the paucity of long term power purchase agreements for the last five years forcing plants to supply power on a short term/merchant basis, the report said.
The summer of 2016 has witnessed short-term/merchant rates as low as Rs 1.6 per unit on the power exchanges, which is barely sufficient to cover the variable expenses of these plants under the current cost scenario.
"Considering the unfavourable demand-supply situation and the overall scenario for thermal power generators, it is unlikely that they will be able to pass on the full impact of this price rise to end consumers.
"Despite the negative impact of the price hike it will not materially impact the credit profiles of large thermal power generators," it added.
