Tata Power, Adani set to pass on high fuel cost to Mumbai consumers

Tata Power and Adani Electricity may pass on the higher fuel adjustment charges (FAC) to the consumers in coming months as imported coal prices have risen over 200% since August last year.

According to industry sources power distributors have incurred higher fuel costs that needs to be adjusted soon before it surges further in coming months. Fuel costs are expected to remain high in the short term due to Russia-Ukraine conflict.

Maharashtra has a five-year tariff policy that was determined in 2020. Fuel adjustment charges, the variable component of the tariff, can be adjusted every month depending on the fuel cost.

In the last two years when the country was impacted by Covid, state electricity regulator MERC asked discoms not to pass on the FAC to the consumers as they were not in position to bear the higher tariffs. The regulator asked utilities to create a FAC fund and utilise the amount against negative charges in any month. If the fuel cost was lower compared with approved cost by the regulator, the surplus was reserved in the fund.

As per the state load dispatch centre’s (SLDC’s) merit order list effective from March 18 to April 15, 2022, Tata Power’s approved variable cost has increased to Rs 7.35 per unit from Rs 4.81 per unit in December, 2021. The Trombay power plant that supplies power to Mumbai uses low sulphur mid-calorific value Indonesian coal whose prices have risen over 228% since August 2021. The increase in global coal prices have been steep after the Russia-Ukraine war. “The seaborne thermal coal prices jumped to an all-time high of $430/MT for South African coal as western countries started to impose sanctions on Russia,” said rating agency Icra in a note.

According to sources, Tata Power is expected to have around `1.10 per unit of FAC for March due to increase in the variable cost. Similarly for Adani Electricity the FAC is seen at Rs 0.25 per unit given their usage of merchant power to meet additional requirement for Mumbai. The higher coal cost will need to be adjusted in the FAC going ahead, however it will require regulatory nod before it is passed on to the consumers.

In response to a query by FE, Tata Power spokesperson said that the higher variable cost needs to be seen in a context that the the load dispatch centre report does not consider the pooled power that is sourced from solar, hydro and administered gas. “The company bills its customers on a pooled power basis, while scheduling is as per merit order. For Mumbai the company provides 180 MW capacity on APM gas and 440 MW via hydro power. The power producer also sources power from renewable sources, which brings down the pooled cost of power.

As far as coal is concerned majority of it is tied on long term contract from Indonesia which is linked to the local index. “Due to this reason coal sourcing cost is very much optimised,” Tata Power spokesperson said.

Adani Electricity’s coal supply to 500 MW Dahanu power plant is 100% on domestic coal. However, it sources coal from spot market or through short term contracts which has the imported price component. The commencement of power supply from the renewable energy purchase agreement at a fixed tariff of `3.24 will reduce our exposure to merchant power prices going ahead, Adani Electricity Mumbai, spokesperson said.

“We have taken concrete steps to provide long-term tariff visibility to our consumers. 100% domestic coal supply to Dahanu power plant ensures that consumers are not impacted by the alarming increase in imported coal prices. Further, the commencement of power supply under the 700 MW renewable energy PPA has significantly diminished our exposure to merchant power prices,” Adani Electricity spokesperson added.

Prices of imported coal are poised to spike by around 45-55% on quarter in Q1FY23 as markets face supply disruption following the Russia-Ukraine conflict. This will severely impact domestic users of imported coal since, notwithstanding some moderation from the all-time highs of March 2022, coal prices are expected to stay elevated throughout FY2023. Russia remains a key supplier of coal in the seaborne market, accounting for around 17% and around 10% of the international trade in thermal coal and coking coal respectively.

Hence, going forward the fuel adjustment charges are likely to be high and if not adjusted soon they may result into much higher burden in near future, sources said.