Captive Power Plants May Face The Heat In Election Year

The captive power plants are sweating ahead of the summer which coincides with the general election.

The Central Electricity Authority had forecast the energy requirement to grow 6.5 percent to 1,337 billion units in the ongoing financial year after a jump of 6 percent in 2017-18. The demand, according to a report by Indian Ratings, is expected to jump 6-7 percent in 2019-20. And it peaks during summer months.

Already facing coal shortage, small units that produce electricity to meet internal needs of aluminium to steel producers have turned apprehensive fearing that the rising demand may lead to diversion of coal to independent power producers in an election year.

“On an average, in the last 11 months, the capital power industry has not received more than 50-55 percent of its coal entitlement from Coal India Ltd.,” Rahul Sharma, chairman of Indian Captive Power Association, told BloombergQuint. “We saw disruption in supplies in 2018 (in May, July and September ahead of state elections), when supplies were diverted to independent power producers.”

The diversion of coal results in idle capacity and huge risk of production halt or even plant closure, said Sharma. The units, he said, are forced to operate on costly imported coal, increasing the costs.

The power ministry, in a letter after the February 2019 conference of power ministers of states and union territories, asked states, the CEA and regional power committees to give priority to independent power producers—BloombergQuint has reviewed a copy of the letter. The government advised imported coal-based plants to keep adequate stocks. Domestic coal, it said, will be reserved for coal-based power plants.

Anticipating an increase in demand between March and June, states are tying up with generating companies for more power, power trader PTC India Ltd. said in its monthly report. That comes when coal stocks at 35 power plants with 48,722 megawatt capacity, according to CEA, ranged from one to seven days at the end of February against the 22-day requirement.

Distribution utilities have also signed short-term power purchase agreements in advance on the government's e-auction portal for April-October, Girishkumar Kadam, vice-president and sector head of corporate ratings at ICRA Ltd., told BloombergQuint. “There may be spikes in spot power price in the coming months on the energy exchange, depending on the power demand and coal availability.”

The captive power producers provide electricity to industries like aluminium, iron and steel, cement, copper, paper, among others. There are 51,000 MW of captive power capacity, about 28,000 MW of it fuelled by coal, according to Indian Captive Power Association.

These plants, which require close to 188 million tonnes of coal annually, are running low on fuel with some having one to five days of supply, said Sharma, adding that some companies are importing fuel to beef up their stocks to meet the extra demand during the upcoming election and summer.

State-run Coal India, which produced 527.7 MT of coal with an offtake 548.5 MT between April-February, targets a production of 610 MT for the current financial year. The power ministry's thermal power generation target of 1,059 billion units for 2019 requires 681 million tonne of coal—631 million for domestic coal-based plants and 46 million tonne of imported coal-based plants. But the miner has fallen short of the target in the last 12 years.

Any shortage will impact captive power plants more as these would have to supplement the coal requirement with either e-auctions or imported coal, Sharma said. “It takes 25 days to normailse supply after stoppage and 45 days to import coal.”