Friday, June 24, 2022

Imported coal: Govt proposes compensation for pass-through of increased power cost

The Ministry of Power has modified norms for pass through of higher cost of imported coal used by thermal power plants

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  • The methodology has been revised to make it in line with the existing methodology being adopted by the CERC, said the Power Ministry
  • To enable gencos importing coal with adequate cash flow, the provisional billing shall be done by gencos on a weekly basis

New Delhi: The Ministry of Power said on Friday that it has modified norms for pass-through of higher cost of imported coal used by domestic thermal plants having Power Supply Agreements (PSA) with discoms under tariff-based bidding. The ministry said in a statement that domestic coal-based power plants whose tariffs have been determined under Section 63 of the Electricity Act have raised concerns about the pass through of the increased cost in tariff if imported coal is used.

Imported coal: Methodology for calculation of compensation

They requested for a suitable methodology to determine the impact on tariff of mandatory blending of imported coal. The ministry said it has examined the request in detail and a methodology has been finalised in consultation with the Central Electricity Authority (CEA), which was discussed in a meeting held on May 20 with the stakeholders. Based on the discussions, it said, “The methodology has been revised to make it in line with the existing methodology being adopted by the CERC (Central Electricity Regulatory Commission).”

In the light of the present circumstances, and in continuation of the directions to import coal for blending, using the powers under Section 11 of the Electricity Act, the ministry has directed that the methodology shall be used by generating companies and state governments/discoms to calculate the compensation due to blending with imported coal. The methodoogy can be accessed here.

Gencos to generate provisional power bills for procurers every week

The mechanism for billing and payment for these plants shall be as per the PPA (power purchase agreement).

However, it stated that to enable generating companies (gencos) importing coal with adequate cash flow, the provisional billing shall be done by the gencos on a weekly basis. Payment of at least 15 percent of the provisional bill shall be made by the procurers within a week from the date of receipt of bill, it stated.

This provisional billing and payment shall be subject to reconciliation during final billing and payment on monthly basis as per the PPA.

In case of default of payment of 15 percent of the weekly provisional bill, the genco shall be free to sell 15 percent power via the power exchange.

The gencos shall ensure blending with imported coal and maintain coal stock as per extant norms and the directions issued by the ministry from time to time, it stated.

This direction is for coal imported for blending by such domestic coal-based power plants up to March 31, 2023.

Background

The ministry has issued directions to gencos using the powers under Section 11 of the Act in the light of current circumstances due to sharp increase in electricity demand. It stated that with soaring power demand and power shortage in some areas, the generation needs to be maximised.

The ministry added that despite efforts to increase the supply of domestic coal, there is still a gap between the requirement and supply of coal, because of which the dry-fuel stocks at the generating stations are depleting at a worrisome rate.

Taking note of the fact that blending of imported coal to the extent of 10 percent is not happening as stipulated, the ministry issued directions to all gencos on May 18 that if the orders for import of coal are not placed by them by May 31, and if the imported coal does not start arriving at power plants by June 15, 2022, the defaulter gencos would have to import coal to the extent of 15 percent (to meet shortfall of imported coal in Q1) in the remaining period up to October 31.

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