Power as a sector consumes a lot of coal, consumes a lot of raw materials which have recently spiked. How worried is the industry about coal coming or prices of coal going up? Can you talk to us about how dynamics have changed in the last few days?
We need to look at coal from two perspectives; the first is domestic coal. The domestic coal availability is very good. However, during certain periods, there have been certain shortages as we saw last year in October. We also need to get ready to meet the additional power requirements that will come with soaring temperatures in the summer months. The cost of diesel will go up and the recovery cost of coal or the mining cost of coal will also go up to that extent. So to a certain extent, it will have an impact but not a very large impact.
As far as international coal is concerned, India does not import too much of Russian coal and so to that extent, it is insulated. However, other countries of Southeast Asia, Japan, Korea, Taiwan and also China import huge quantities of Russian coal and that will definitely get impacted. That means the prices of coal coming into Southeast Asia from Indonesia and Australia can go up.
In the last 15 days, the prices of international coal, especially the Indonesian benchmark prices have gone up by nearly $10 dollars and are expected to go up further if the war continues. That will be a challenge for all the plants which are imported coal based. Nearly 20 gigawatt of power generation which is dependent on imported coal will get impacted as the tariff will go up. But overall, in India, nearly 600 million tons of coal are supplied by domestic coal companies and that should be okay.
The imported coal prices have skyrocketed and apart from the supply disruption in Russia and Ukraine, do you think there is going to be an increase in demand as some of the EU thermal power plants are now being restored to reduce the dependency on Russian gas. Does that imply that prices will remain elevated through the year?
It looks like it. It looks very likely that the prices which have been already very high for the last one year will continue in this range. We were expecting the international coal prices to come down to about $100 in the later part of this calendar year, but it will now be upwards of $150.
Globally, there is a huge supply demand change shock. Even if things get sorted out globally, it may take some time before things start to move again in a normal way?
Absolutely. So international coal and oil prices for the next six months will definitely be very much stressed and we can expect a higher range of prices during this period. Only once the war gets over and things stabilise can we expect the prices to come down, but definitely for the next six months, it is a very fluid situation.
Merchant tariffs shot up by about Rs 20 per unit in February with the average now at about Rs 5-6. What should we brace ourselves for in the medium term when it comes to the merchant tariff rates?
Merchant tariff rates will be a little bit distressed. It will be on the higher end, considering that summer has started very early. Normally, we do not see 190 gigawatt of consumption in February. Pre Covid, we saw this range only in June, July which is the peak summer. We definitely expect this year’s peak summer requirement to go up to about 220 gigawatt. That means that all the power plants in the country which are on domestic coal or imported coal, have to produce full capacity as also the renewable and hydro plants. So the prices will remain a bit on the higher side. I think the energy conservation messaging has to be much stronger. Similarly, the line up of coal inventory has to be done in such a way that we do not have a situation of zero coal stocks in the plants.
Geopolitical tensions are causing commodity prices to go up. We have started to see companies like yours brace for any coal shortage, stock up on inventories. Is there more inventory? Of course spot prices would be much higher?
Companies like us have a long-term arrangement and so we in any case, keep on getting every month our requirement of coal and in our case we have tied up with Indonesian coal companies. We of course get coal at the price defined by the local government over there. But we do not have to do a knee jerk reaction of getting spot purchases and things like that. So to that extent, if one has planned coal procurement on a long-term basis, one will continue to get coal and will not be stressed out by non-availability.
Given the larger picture for renewable energy at Tata Power, whether it is deal making or fundraising, what exactly is the game plan?
Tata Power is driving the renewable roadmap for not only Tata Power but also for many of the group companies and also for many of the large industries. We have come up with a very smart solutions which not only gives them renewable during certain hours of the day but also hybrid solutions packaging it in such a way that we can give them 24/7 solutions and many of these solutions are now started getting implemented.
Going forward, we have viable and commercially attractive proposals which will ensure that industries or commercial establishments can go for 24/7 renewable energy. Tata Power has a huge amount of experience in carrying out such activities. It has developed a large number of tools for ensuring that 100% renewable energy can be supplied and we are very confident that not only we will drive this within the various companies within the group but also outside for other industries and commercial establishments.
In the last two years, have you seen a significant change in asset ownership, investments from various companies towards EV, power and road which was probably missing in the last five, seven, 10 years?
Yes, I definitely see that the trend is changing, whether it is in power generation where renewable power is getting more focussed. Tata Power, from producing just 15% of our energy from non-carbon sources four years back, has moved to nearly 30% now and in next five years, it will be nearly 60% of that.
There is a trend that all future investments will happen in renewable energy. When I talk of renewable energy, it is not just solar or standalone wind, but hybrid solutions of solar, wind, hydro and storage can come in. That is the way the trend will change going forward with more of solar, wind, and hydro and less of thermal.
In fact no capacity addition is happening in thermal and once all the old plants complete their usefulness, they will get decommissioned. The trend is very clear. Similarly, we are seeing that electric mobility is picking up pace – whether it is by the fleet owners or individual owners – be it four-wheelers, two-wheelers, public transport systems or buses – all are moving towards that. But this is a transition and not something that can happen overnight.
The transition is happening at a very fast pace and I am sure in the next two-three years, we will see a huge increase in and penetration of renewable energy and electric transportation in the country.
Do you believe that the move towards EV and solar will take you a step further in terms of investments over the next six months if prices were to stay where they are?
In the last 10 years, people have been sensitised about the climate change and I do not think we should look at it from a short-term perspective of the war and the immediate increase in oil prices. Globally, there is a commitment that we need to move towards non-carbon usage whether it is for energy or it is for transportation and this trend will only pick up pace. Unfortunately in the last two years, because of Covid, many of the actions got a little stalled but in the next eight-nine years in this decade, we are going to see huge action in moving forward the agenda of clean and green energy.
A 100 years of the hydro plant of the company is a milestone. You have seen so many cycles. What exactly does this mean for Tata Power?
This means a lot of things to Tata Power. One is that the innovation that Tata Power did 100 years back of setting up a green generating plant hydro plant in the foothills of western ghats is still very good and it is still very topical. Today it plays a very important role in supplying electricity to Mumbai.
If one looks at how we are packaging 24×7 renewable energy, during daytime, we have solar power and during evening peak, we can use the hydro power to beat the requirement of the city and then of course we can package it along with wind in other hours of the day. So hydro combined with the other resources makes a great sense in terms of how we can meet the future requirement of power. This is a great plant. Even last Sunday, when we had a blackout, this plant survived and was the first one to come on the grid and continued supplying within 15 minutes.
In fact this is the second Tata hydro plant which has completed 100 years. The first one was the Khopoli plant which was completed way back in 1915. We will have another plant which will complete 100 years in 2027. So these are the backbone of power supply for the Mumbai city and clean power is always something that we look forward to.