To make electricity tariff affordable for consumers, the Ministry of Power is working on a proposal to reduce power purchase costs along with optimising coal utilisation. The move comes on the back of increased capacity addition and slow demand growth over the years, which has now led to a reduction in overall capacity utilisation and share of coal-based power generation.
Sources told CNBC-TV18 that the Ministry of Power wants to remove the pre-condition of obtaining a Power Purchase Agreement (PPA) under the Fuel Supply Agreement (FSA) for coal supply. The ministry plans to allow the selling of spare capacity in power exchanges, which will help states procure cheap electricity and pass on the benefit to consumers.
The ministry is likely to allow states to utilise coal from power companies that already have PPAs under the case 2 bidding, as some private sector power plants do not have enough coal supply and end up importing coal or buying at e-auctions at a higher cost.
“It is a very positive move for the power sector, specifically for projects where power companies do not have Power Purchase Agreements. It will not only help the stressed power sector, but also dampen electricity prices,” said Ashok Khurana, Director General of the Association of power producers.
The ministry is of the view that there should be revision of coal quantity in FSA to allow power plants to run at full capacity, but it will be subject to selection of private power producers through e-bidding.
The Central Electricity Authority has identified over 5,500 MW capacity of power plants with the central and state governments as inefficient and old plants. The ministry is mulling to allow both state and central government power generating companies to retain coal linkage and extend coal for its existing power plants and ramp up utilisation to 100 percent.
The ministry could seek to remove penalties for reduced offtake of coal to pare some burden off power generating companies.
