Flexibility in utilization of domestic coal linkage to benefit distribution utilities: ICRA

In ICRA’s view, the flexible utilization of coal linkages by state owned and central owned generation utilities is a positive development for the distribution utilities as it would result in an optimal utilization of the linkage coal from mines and help to lower the transportation cost of domestic coal used, which in turn will lead to reduction in cost of power purchase. “For every 100 km reduction in distance travelled for transportation of coal, variable cost of coal based power generation for linkage based plant is estimated to decline by about 9 paise per unit. The actual savings would vary depending upon the reduction in the coal transportation distance, given that the linked coal mines are at a distance varying from 100 km to 1000 km from the end user plants.”, says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.

The Government of India on May 4, 2016 has approved flexibility in utilization of domestic coal with the objective of allowing an optimal use of domestic coal by the generation utilities so as to reduce the power purchase cost of State owned distribution utilities. The proposal envisages that all the long term coal linkages of individual State generating stations shall be clubbed and assigned to respective States or State nominated agency. Similarly, coal linkages of individual central generating stations shall be clubbed and assigned to the company owning them, so as to enable efficient coal utilization or allocation amongst end use generating stations.

From the distribution utility perspective, relief in cost of power supply would be dependent upon the sourcing mix of coal based energy and average distance travelled for coal transportation for generation utilities in the state. “The average cost of supply for distribution utility is estimated to decrease by 7 paise per unit for every 100 km reduction in distance travelled for transportation of coal, assuming that the distribution utility procures 60% of its overall power requirement from coal based generation stations, with the balance being from other sources such as hydro and renewable. In case the mix of coal based generation in the procurement is higher at 75%, the relief in cost of supply is estimated to be higher at 9 paise per unit”, Mr. Majumdar further adds.