India looking to shift coal supply from power generating to distribution

KOLKATA (miningweekly.com) – India’s Coal Ministry is working on a scheme to progressively shift the auctioning of coal supply linkage away from power generation companies to power distribution companies.

While details of the scheme were still in the works, a Coal Ministry official said that the objective was that existing fuel supply agreements (FSAs) with power generation companies would be replaced by coal supply linkages to distribution companies. These would be awarded through auctions.

The rationale for shifting coal supply linkages was that, with assured coal supplies, distribution companies would be able to negotiate for power purchase agreements (PPAs) with generation companies based on competitive tariff-based bidding.

Even greenfield power projects, which were stranded as a result of a lack of coal supply agreements, would not be offered coal linkages. Instead, fuel supplies would be offered to distribution companies with which these projects had entered into PPAs, the official added.

The volume of coal that distribution companies would be allowed to bid for would depend on fixed parameters laid down in the new scheme. Based on the power requirements of each of the distribution companies and terms and conditions of proposed PPAs, power companies would have to enter into competitive tariff bids and clinch the final PPA with distribution companies.

The new supply linkage scheme would put the onus for fuel supplies on to distribution companies and possibly resolve issues of power projects left stranded. The Coal and Power Ministry estimated that an aggregate 8 000 MW of generating projects have valid PPAs with distribution companies, but had no fuel for their plants as short-term coal purchase agreements had expired on March 31, 2016.

These generating projects included Adani Power’s plants at Tiroda and Kawai, Bajaj Energy’s plant at Lalitpur and KSK Limited’s plant at Chhattisgarh.

According to a 2015 consultative paper prepared by government policy advisory body, Central Electricity Authority, an estimated 22 800 MW of generating capacity had letters of awards (LoAs) for coal supply. These power stations were slated to go into production between 2017 and 2020, but projects had failed to convert the LoAs into FSAs.

The official explained that, with the number of distribution companies getting the option to offer fuel and buy power from generating companies, the entire fuel supply chain would be debottlenecked with Coal India Limited not burdened with the entire load of concluding FSAs.