Private Power Producers Are Now Allowed To Switch Suppliers

A taskforce’s suggestion to allow private power producers switch coal suppliers was approved today in a move aimed at lowering supply shortages and optimising transportation and generation costs.

Independent power producers such as Tata Power Co., Essar Group and Jindal Power Ltd. will be able to move from one coal supplier to another “based on the availability during the fiscal and future production plan of the company”, according to a statement by the Coal Ministry. Earlier, the source of coal was fixed if the company had signed a supply pact.

The exercise to rationalise coal linkages has the potential to reduce power costs for consumers since the savings will have to be passed on, according to Jayanta Roy, senior vice president and group head of corporate sector ratings at ICRA Ltd. By lowering the distance coal travels, the government also plans to reduce congestion for the railways, he said.

Twenty-four of the 114 thermal power plants had stocks of less than seven days as on May 14, according to the Central Electricity Authority’s website. Earlier this month, as many as 32 reported shortages.

The ministry reiterated that reduced landed price of coal will have to be passed on to power distribution companies and consumers in form of cheaper electricity.

Generic impact cannot be defined, an official from the Association of Power Producers told BloombergQuint requesting anonymity. Coal India Ltd., Singareni Collieries Company Ltd. and Central Electricity Authority of India should jointly call for requests from power producers for rationalising linkages. It depends on whether approval will be given by these agencies, he said.

Ashok Khurana, director-general, Association of Power Producers, declined to comment when called.

ICRA’s Roy said the exercise would be voluntary and independent power producers would have to first evaluate the technical suitability of coal from new sources for their plants.