1. With new system, NTPC sees major tariff benefits flowing to discoms

With new system, NTPC sees major tariff benefits flowing to discoms

NTPC expects discoms to benefit by up to 10 paise per unit from its proposed fixed-price pooling mechanism for coal-based power plants, as thermal plants compete with falling alternative power tariffs, a senior company official told FE.

By: | New Delhi | Published: September 5, 2017 5:41 AM
NTPC, discoms, tariff NTPC will need approval from state discoms and governments for the change in fixed and variable costs before the system becomes a reality. (Sources: IE)

NTPC expects discoms to benefit by up to 10 paise per unit from its proposed fixed-price pooling mechanism for coal-based power plants, as thermal plants compete with falling alternative power tariffs, a senior company official told FE.

The idea is that cheaper stations will work faster so that the overall cost of power dips and the company benefits through higher generation. Any savings in energy cost could be shared by states. Efficiency gains, if any, will be taken home by NTPC, which could be due to higher plant load factor. The idea is to avoid maximum transportation of coal.

India’s largest power producer targets to cut the average cost of generation by running around 24 pit-head plants at full load, while four non-pithead plants would be run on merit order, the official said. NTPC’s coal-based installed capacity from 20 power plants is 38,755 MW, while another 5,249 MW is produced by eight joint ventures and subsidiaries.

NTPC will need approval from state discoms and governments for the change in fixed and variable costs before the system becomes a reality.

“The discussion with states is in progress and we have not reached a final conclusion yet, but we expect it to be completed soon. We see around 10 paise a unit benefit for discoms through this mechanism where pit-head plants will work at full PLF, while the non-pit-head plants will be run on merit order basis,” the official said.

There will be no renegotiation of PPAs with discoms, but all tariffs would be determined as per the Central Electricity Regulatory Commission norms, the official said.

Swarnim Maheshwari, research analyst with Edelweiss Securities, said: “If successful (the mechanism) can improve NTPC’s overall efficiency by 1-2%. While this could positively impact profitability by 5-10%, its successful implementation is likely to be arduous as it will require buy-in by all states, apart from necessary approvals of regulatory authorities.”

Salil Garg, director (corporates) at India Ratings, said it is likely that the government will use its persuasive power with the discoms as it would be a win-win for all the players. The company will most likely pass on the cost benefits to discoms and even the non-pit-head plants could benefit from higher variable costs, although the fixed costs could be lower.

“The company may also look at weighted average tariff for all the plants,” Garg said.

In a report, Axis Capital said an increase in tariffs for few states would be compensated by lower fuel cost on better efficiency. All states have to approve this mechanism of pooling, and bottlenecks could be states having cheaper plants.

The company also plans to reduce its fuel cost by ramping up production from captive mines. The output from coal mines is expected to increase to 25 million tonne in the next five years from the current 2-3 million tonne. “Five mines with a capacity of 56 million tonne have all clearances and are likely to start over next 1-2 years,” the Axis report said.

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