India will grant environmental clearance only to the import of high-grade coal, which could stymie plans of boosting power generation capacity at large plants that depend on overseas fuel supply.
In the face of chronic and severe power shortages, India aims to build at least 16 power plants capable of generating as much as 4,000 megawatts (MW) each, referred to as ultra-mega power projects (UMPPs). Of these, the government has awarded four to private firms. Two of these plants, being developed by Tata Power Co. Ltd at Mundra in Gujarat and Reliance Power Ltd (R-Power) at Krishnapatnam in Andhra Pradesh, are to be fuelled by imported coal to produce electricity.
Many others, including Adani Power Ltd, JSW Energy Ltd and GMR Energy Ltd, are also setting up power plants to be fired by imported coal.
After coal prices rose faster than anticipated in the past couple of years, some companies have started looking at importing lower-quality coal to maintain the financial viability of their projects. These plans may now be jeopardized.
“The proposals for environmental clearance of imported coal-based ultra-mega thermal power projects would be considered taking into consideration the following quality parameters of imported coal, namely gross calorific value (5,000 minimum); ash content (12% maximum) and sulphur content (0.8% maximum),” the ministry of environment and forests said in a 5 February notice put up on its website. “The validity of environmental clearance granted is subject to compliance with the coal quality parameters indicated above.”
Due to the unexpected rise in fuel price, work has halted at Krishnapatnam and Tata Power has approached the Central Electricity Regulatory Commission, India’s apex power sector regulator, to consider increases in power tariffs. Both plants were envisaged as fast-track projects requiring investments of around Rs.20,000 crore each.
Coal with a higher calorific value reduces wastage and improves generation efficiency of power projects. Analysts estimate that one tonne of imported high-grade coal is equivalent to 1.56 tonnes of domestic coal, which has high ash content.
“In the aftermath of the price benchmarking regulation of the Indonesian government for high-grade coal, lower-grade coal found favour from Indian power generation companies, and coal supply agreements have been signed for supply of these grades,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based energy- and resources-focused consultancy. “Lower-grade coal from Indonesian assets has been sought after for acquisition as well.”
Both Tata Power and R-Power bought coal mines in Indonesia to feed their plants. But imports became expensive when the Indonesian government last year started levying higher royalty and income tax.
“Indian power companies may have to consider alternative options in the wake on the new environmental regulation, which may be relatively scarce and expensive,” Dipu said. The environment ministry’s latest notification may rule out the lower-grade coal from Indonesia, he said.
“Such specifications were not apparent at the time of bidding of imported coal-based projects, including UMPPs,” said Shubhranshu Patnaik, senior director, consulting, energy and resources, at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consulting firm. “With not all imported coal having a calorific value of 5,000 kilocalories and above, this will impact projects with sourcing strategies already in place.”
Coal demand in India is expected to grow from 649 million tonnes per annum (mtpa) now to 730 mtpa in 2016-17, making the country heavily dependent on imported coal, given the projected local availability is only 550 mtpa.
By 2025, India will be the world’s second largest consumer of the fuel after China, playing a major role in international energy pricing, the International Energy Agency projected in its World Energy Outlook 2012report.
“The environment ministry wants to ensure that imported coal in the country is of good value. Better quality of coal is an additionality that they have included. All these parameters like calorific value, ash content and sulphur content will become part of the conditions before environment clearance is given,” a government official said, requesting anonymity. “The quality of coal in the country needs to be of acceptable standards.”
“A lot of the Indonesian coal is high in sulphur content, sometimes to the extent of 0.7-0.9%, though the ash content is low,” the official added. “This circular is a revision of the November 2010 circular by the environment ministry. It has been revised because UMPPs weren’t kept in kind then, but now their numbers are growing.”
Spokespersons for R-Power and the JSW Group didn’t respond to questions emailed on Friday.
“We have gone through the notification by MoEF (ministry of environment and forests) and are studying the implications of the same,” a Tata Power spokesperson said in an emailed response. “There are certain clarifications required, which we will seek from MoEF.”
“Specifications as mentioned by the ministry of environment will only be available from Indonesia and Russia. It will exclude Australia and South Africa, which will be major exporting countries in the future and from where huge imports are projected to India,” an Adani Group spokesperson said by email. “A buyer can get competitive prices on long-term (contracts) when he is given flexibility in specification.”
Adani Power has also approached CERC to consider an increase in power tariffs after customers declined to pay higher rates for the electricity generated from its imported coal-based power plant in Mundra.
“Since fuel is going to be a pass-through in new UMPP tenders, a restriction in specification of imported coal should be in line with restrictions as specified in specification of Indian coal. In Indian coal, the restriction is only on ash (desired below 30%) and the same should only be specified in imported coal to give the developer an opportunity to secure coal on competitive basis,” the Adani Group spokesperson said.
“We are not aware of any such notification, and we will study it on receipt of the same,” a GMR spokesperson said. “We are yet to start import of coal for our plants.”