Power cuts increase, but NTPC struggles to sell to utilities

It's a paradox of sorts that at a time when most States are resorting to varying levels of load shedding, power major NTPC Ltd is increasingly finding it difficult to sell electricity to distribution utilities.

The country's largest power utility, and one of the most cost-efficient in terms of delivered electricity tariffs, has seen an estimated 10 billion units of electricity going unsold in the first seven months of this fiscal.

Last year too, around 13 billion units generated by the state-owned utility went unsold as distribution utilities failed to draw power according to the schedule declared by them.

Though the electricity going unsold is just a fraction of NTPC's total generation (around 221 billion units last fiscal), the worrying aspect is the growing tendency among distribution utilities to go in for load shedding rather than shell out a higher amount of money for buying expensive power from projects using liquid fuel or those where higher amounts of imported coal blending aretaking place.

While liquid fuel generation is evidently expensive, blending of imported coal too jacks up the electricity tariffs as such coal is relatively more expensive than domestic coal.

Tariff revision

Since fuel costs are pass-through for nearly all of NTPC's projects, as the blending ratio increases, the financial hit on distribution utilities and State Electricity Boards (SEBs) is higher, unless they can pass it on to the consumers.

As most SEBs have failed to revise tariffs to the extent required for passing on the actual costs faced by them, they are struggling to cope with the cost increases being passed on to them by the generators. The trend, warn experts, could only get worse , as the level of blending of imported coal is only scheduled to increase as domestic coal production has failed to keep pace with demand.

As a thumb rule, around 75 per cent of cost of power for a thermal station is on account of coal. Back-of-the-envelope calculations show that against a projected requirement of 742 million tonnes of thermal coal for fuelling coal-fired stations by the end of the Twelfth Plan, only 527 million tonnes of domestic coal are likely to be available even in the best-case scenario. This translates into a shortfall of 215 million tonnes or 29 per cent of the country's total requirement projected by 2017.

Cost implications

To get an idea of the cost implications of imported coal, NTPC's Farakka station, where the power generator is currently blending 20 per cent imported coal — the highest in all its stations, has already seen just variable component surge to Rs 2.79 per unit of electricity produced in 2010-11.

This has pushed up tariffs to well over Rs 3 per unit. Farakka's variable cost is much higher than the NTPC's average tariff of Rs 2.63 across all its 28 stations during the financial year.

NTPC is currently blending imported coal ranging between 7 and 20 per cent across its stations. NTPC's average imported coal blending during 2010-11 was close to 8 per cent in comparison to about 6.5 per cent in the previous year. This could be much higher this year, as the domestic coal shortages are increasing by the day.