PRLog - Nov. 26, 2012 - BRISBANE, Australia -- Just days before Diwali, a newly built 500MW unit of the upcoming 1,000 MW Koderma coal power plant of Damodar Valley Corporation (DVC) announced that it had failed to come online for lack of coal.
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DVC, a government owned company, with plants located in the eastern states of West Bengal and Jharkhand was initially formed to control the river Damodar. It has since diversified significantly in the region and operates 4,875MW of generating capacity, of which 4,700MW are coal based.
After a visit to plant on November 9, Rabindra Nath Sen, DVC Chairman said that he had been trying his best to get the required coal for the Koderma plant.
“Letters have already been sent to the power and coal ministries at the Centre for providing six rakes of coal every day so that commercial operation of the plant can be started at the earliest,” he was quoted in Times of India as having said.
The new DVC plant symbolises India’s ongoing crisis of coal shortages.
The plant is possibly just one of about 10,000MW of new plants without any access to coal. Power sector observers have long been whispering privately about distressed new coal plants. Those whispers have turned into a louder murmur – not quite a roar but enough to be heard.
The Prime Minister’s office (PMO) has made it known to Coal India, the country’s largest coal producer servicing about 80% of the domestic demand, that it wants fuel supply agreements signed with all applicable power plants by the end of the month. About 30,000MW of plants are yet to sign fuel supply agreements with CIL.
The PMO deadline for signing fuel supply agreements also came with a change. It said that plants which are yet to secure long or medium term power purchase agreements (PPA) could still sign the fuel supply agreement but could only lift the coal after they produce an acceptable medium or long term PPA. This subtle, relatively underreported, change in the PMO’s guidance on which plants would be allowed to sign fuel supply agreements should come as relief to many new power plants.
Over the last few years, drawn by unreasonably high valuations and the entry of private equity in the power sector, several companies began developing new power plants with the intent of selling their power in the short-term power market.
At that point, the game looked relatively simple and compelling. Get supplies from Coal India, which effectively offered regulated prices that are 30-40% lower than equivalent international prices. Produce and sell electricity into the short term or secondary markets, where power prices are much higher and often comparable to electricity produced from imported coal. Those margins could be compelling. But it soon became obvious that there wouldn’t be enough domestic coal to go around.
Even as Coal India declined to supply coal to power plants without medium or long-term PPA, many new power plants seeking to tap the short term electricity markets had to contend with rapidly declining power prices in those markets. Between 2008-09 and now, these prices have dropped by almost half to about Indian Rupees 4 per kWh (US$75/MWh).
For new power plants with a medium or long-term PPA and without the possibility of supply from Coal India, the subtle change of direction from the PMO will be welcome relief. It may not entirely secure them supplies, because there simply isn’t enough domestic supply to go around, but at least it lets them get in the queue.
For international coal exporters eyeing the prospects of increased sales into India, this segment of distressed power plants in search of fuel should be an exciting opportunity to explore.
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