As coal prices rise, power cos feel the heat with higher cost pressure
Global coal prices have been on a steady rise in the last few months, increasing cost pressure for thermal power producers in the country. This is happening as they struggle with lower offtake for the power they generate. The price of 4,200 kcal/kg grade coal, which is a very popular grade bought by both India and China, has surged 33% to $49.25 per tonne as of Friday, compared with the start of 2017 when it was assessed at $37 per tonne, Platts data shows. Thermal power producers in India who are dependent on imported coal now face the tough situation of higher cost of production, while the sale price for power continues to remain weak in India. Adani Power, Essar Power, Tata Power and JSW Energy are some of the companies which run power generation capacities on imported coal. “Our sourcing cost for coal has increased from $55 per tonne to $ 60 per tonne in the last three to four months time,” said an official from Essar Power. To put the rise in perspective, the official stated, ballpark for every one dollar rise in coal prices, there is 20 to 25 paise addition to the cost of power generated. For Essar Power, 50% of its 2400 megawatt capacity runs on imported coal.
coal price chart Power producers are already feeling the heat, with analysts expecting higher coal costs to show its impact in the third quarter results reporting. For those like Adani Power, the effect is evident. The company’s consolidated net loss increased to Rs 12.9 billion against Rs 6.6 bn in the corresponding quarter a year back as a result of higher fuel cost, lower generation and high interest and depreciation cost. “Prices are off late rising and there is a definite impact on the third quarter numbers also.
We do not expect prices to cool down, as all energy prices are shooting up,” said an independent analyst who did not wish to be identified. The analyst added for companies where there is a power purchase agreement in place; Coal India’s recent hike in prices may come as a respite. “The PPAs are linked to the Central Electricity Regulatory Commission (CERC) index, which in turn reflects Coal India’s prices. There would be a pass through, but it will come with a time lag,” he said.