GOI unleashed landmark reforms in coal yesterday.
Why Coal Reforms Are So Important For The Indian Economy ?
alphainvesco.com/blog/future-of…
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Why Coal Reforms Are So Important For The Indian Economy ?
alphainvesco.com/blog/future-of…
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The coal sector in India is constrained by tax structure and transportation cost. On landed basis, taxes, duties and levies account for up to ~25% and freight accounts for up to ~34% of overall coal cost.
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56% of India’s commercial energy is met by Coal whereas, ~73% of entire power generated in India is coal based.
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Coal fired power is still very much relevant...in India & globally...
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Today almost 72% of the coal is generated by MDO's. About 48 MDOs and they are virtually independent. CIL is just collecting that 72% production and selling it in market.
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Coal India – Can It Step Up The Production & Plug The Hole In India’s Import Bill ?
alphainvesco.com/blog/coal-indi…
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alphainvesco.com/blog/coal-indi…
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Overall coal demand is estimated to be 1300–1900MTPA by 2030. Of the overall coal demand, thermal coal demand is estimated to be 1150–1750 MTPA and balance is coking coal. While this appears to be a very wide range, nature of uncertainties in the ecosystem are also quite wide.
Coal India has struggled to step up the production. It is worlds largest coal miner already ! Given the size of the operations, very difficult to have a meaningful jump..so only option is to break up coal india in smaller entities or open up coal mining to pvt sector.
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Total coal imports in FY18 stood at 208 MT, against 191 MT in FY17. Australia, Indonesia and South Africa are the three largest exporters of coal to India and contribute to 75-80% of the country’s total coal import.
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India imported arnd 155-158 MT of steam coal used as fuel for thermal power plants. Roughly 80-85 GW of thermal power capacity in India is partially or fully dependent on imported coal. Additional 6-7 MT of other type of bituminous and coke was imported for other industries.
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Currently India has ~40 GW of idle power it has no PPAs signed with the DISCOMs or it is in the IBC-NCLT. These newer plants were built mostly by the private companies which are now stuck because they don’t have PPAs or FSA (Fuel Supply Agreements) from Coal India.
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On surface various coal types look the same but there are different grades to coal depending on its calorific value, ash content, etc) & power plants are built to burn a specific grade and these power plant consuming a specific type of coal cannot burn a different coal type.
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This has led to power plants built on our coastal lines import dependent. They will not be able to burn domestic coal even if they want to because of grades differences.
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Even if the specific grade of coal suitable for our power plants built at the coastal belt is mined in India, then you have the high logistic expense (domestic) which brings the FOB price of imported coal at parity with the domestic coal.
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Indian railway derived 44% of its 2018 revenue from coal logistics & coal forms 40% of the tonne mile for Indian railways. In the recent past Indian railway has not shied away from increasing tariffs for CIL because freight revenue cross subsidizes the passengers.
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Indian railway derived 44% of its 2018 revenue from coal logistics and coal forms 40% of the tonne mile for Indian railways. In the recent past Indian railway has not shied away from increasing tariffs for CIL because freight r cross subsidizes the passenger logistics.
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Wagon Deficit – power plants have complained of wagons not being available for coal logistics. Indian railway has been on back foot for years. Recently it has come out with a order for 22,000 wagons and order of this magnitude has come out after a period of 5 years.
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DFC- Coal logistics also gets choked between destinations because we do not have dedicated freight corridors. Once DFC is fully operational, real benefits will start flowing in. Timing is just right for pvt sector to get into coal mining.
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Pit Head Power Plants Can Become A Reality
Older power plants were constructed near the consumer because, transferring power long distances incurred losses which are technical losses and this led to DISCOMs also paying for these losses.
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Older power plants were constructed near the consumer because, transferring power long distances incurred losses which are technical losses and this led to DISCOMs also paying for these losses.
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But now with upgrades in technology and efficient grids we can have power plants constructed near the mines which will save on logistics expense. Costs for consumers can be lowered in that case.
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if we are able to increase the PLFs of the existing plants, we can meet the rising demand for power from existing plants and if the FSA and PPA issues get resolved then we can also witness fresh investments in the sector.
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Newer plants will be constructed on super critical boiler technology, so that the coal conversion efficiency can be enhanced. India will most likely move to a ‘Time of The Day’ regime for equitable division of power and we will also see declining AT&C losses.
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Old Plants vs Newer Plants– Policy has made it mandatory for the power plants to be able to modulate output to 55% of the capacity in response to grid conditions, particularly at times of high RE (renewable energy) availability.
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Older plants will become less competitive and will need to invest into upgrades which will make the power costlier, therefore betting on companies which have newer plants make more sense versus power companies with older power plants.
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Net net... yesterdays announcements have huge implications in the entire coal value chain, mining equipments, discom losses, power companies stuck in IBC & perhaps PSU banks, reduction in imports, more FDI, underground mining....
This is just the beginning.
End.
This is just the beginning.
End.
