Ukraine crisis will raise electricity tariffs as coal prices rise
The common man’s pocket may be put under further pressure as electricity bills are expected to be the next casualty in the Russo-Ukraine war.
The crisis has pushed up the price of coal, a key raw material used by thermal power units dotted across the country.
At present, many of India’s critical thermal power plants are dependent on imported coal.
After a jump in oil and gas prices over the past two weeks, global coal prices have risen sharply as the conflict in Ukraine intensifies.
In addition, the shipping, logistics and insurance costs for coal shipments have also increased due to geopolitical risks.
So far this year, the price of coal in the international market has increased by 158 per cent to $435 a tonne. There was an increase of 109 per cent in 2021.
The price of coal has reached Rs 10,000 per tonne in the domestic market.
Estimates suggest that a $10 per tonne increase in coal prices increases the cost of electricity by about 32 paise per unit.
“The cost of imported coal has become virtually impractical for Indian power plants, as many of these plants have a competitive bidding fixed tariff structure. For plants with a pass-through structure, the variable tariff is usually reset on an annual basis and This will depend on the cost of procurement from CIL sources, not directly linked to global coal prices,” said Suman Choudhary, Chief Analytical Officer, Acuite Ratings & Research.
“However, plants that run on imported coal and where electricity is being sold on a commercial basis, the tariffs may go up further. The ability of financially constrained state distribution companies to buy such expensive power, however, needs to be seen,” Chowdhury said. added.
According to Nitin Bansal, Associate Director, India Ratings and Research, “Rising coal prices will certainly impact the electricity prices as the cost of fuel needs to be recovered from the discoms which ultimately collect it from the end consumers.
“On the domestic coal front, a 10 per cent increase in the cost of coal will increase prices by 8 paise per unit. For plants that are completely dependent on imported coal, coal prices will increase by about $8 to $10 per unit. The tonne increase has an impact. The cost is around 30 to 32 paise per unit.”
Vikram V., Vice President and Sector Head, Corporate Ratings, ICRA, said: “Improvement in power demand following the easing of restrictions after the third COVID wave, higher imported coal prices in some areas and lack of coal supply. The reason is the rise in higher tariffs in the short-term market.
“Given the expected increase in demand with the onset of summer, improving domestic coal supply remains a major sensitivity to spot power tariffs.”