Efficient Use

CEA framework for flexibility in coal utilization

Following the union cabinet’s approval of the policy for flexibility in the use of domestic coal, the Central Electricity Authority (CEA), in consultation with the stakeholders, has released the methodology for its implementation. The methodology will be applicable only to central and state generating stations. Based on this experience, the Ministry of Power (MoP) plans to formulate a separate methodology for flexibility in the use of coal at the generating stations run by independent power producers (IPPs).

A look at the methodology for flexibility in the utilisation of domestic coal notified by the CEA in June 2016…

The annual contracted quantity (ACQ) of coal linkage [as per the fuel supply agreement (FSA)] aggregated source-wise across generating stations will be allotted to the respective states or companies owning the central generating station (CGS). The terms and conditions of company-wise coal FSAs would be applicable on the aggregate ACQ assigned to the state/company. In addition, the state/company will sign a supplementary agreement with Coal India Limited (CIL)/Singareni Collieries Company Limited (SCCL).

The state/company owning the CGS would communicate to CIL/SCCL its station-wise requirement from different coal sources within the ambit of the overall ACQ. If supply from the source sought by the state/company is not possible, the coal company would offer coal from other subsidiary companies. However, the states must ensure that the alternative source of coal supply entails a similar landed cost and is of the same quality. Moreover, the state/company would initiate the request for requisition of coal from the coal company at least a month before the commencement of power supply. It will also initiate the request for transportation of coal by the Ministry of Railways (MoR) at least a month in advance from the commencement of power supply. The MoR must attempt to transport coal as per the requirement of the state/company. However, in case of constraints in the movement of rakes, an alternative plan would be chalked out by the state/company in consultation with the ministry.

The transfer of coal from one state to another as well as between any state and central generating companies would be implemented as per mutually agreed terms and conditions, within the provisions of the regulatory commission. The agreement between the parties concerned would specify the source, quantity, quality and duration of the supply of coal, the identified generating station for the use of coal, the estimated quantum of electricity to be supplied in lieu of coal and the duration, and the payment security mechanism, among other things. The agreement would be for a minimum duration of one month at a stretch, while the maximum duration can be mutually decided between the parties. However, premature termination of the arrangement will not be permitted. The coal transferring state would make the payment to coal companies as per the existing FSA (and the supplementary agreement), even in the case of coal being transferred to the other state’s generating stations/CGS. The other state’s generating company or the central generating company receiving the coal would reimburse the payment as per the mutually agreed terms and conditions.

For the purpose of billing and calculation of other charges as well as the scheduling of power, an equivalent quantum of power would have to be determined in advance based on the normative operating parameters of the generating station (specified by the regulatory commission), and the quality and quantity of coal available at the generating station.

Analysis of coal transfer under different scenarios

Case 1: Flexibility in the utilisation of coal aggregated with the state at its own generating stations.

The objective behind the utilisation of coal aggregated with the state at its own generating stations is to reduce transportation costs and thereby lower the variable cost of power generation. Besides, this would ensure that coal is available at the generating station as per the optimised requirement, that is, starting from the most efficient to the least efficient plant in terms of total variable charges.

Case 2: Flexibility in the utilisation of coal aggregated with one state in generating stations of other states’ utilities.

A state would be allowed to transfer coal to the more cost-efficient generating stations of other states with the provision of supply of power back to the state transferring the coal. The landed cost of power (including fixed charges, variable charges and transmission charges at the transferring state’s periphery) should be less than the variable charge for power generation from thermal power plants (TPPs) of the coal transferring state.

The techno-commercial feasibility for coal transfer has to be worked out by the coal transferring state in coordination with the Power System Operation Corporation (POSOCO), subject to transmission system availability. As short-term open access (STOA) is granted three months in advance, the feasibility of coal transfer can be worked out before the clearing of STOA applications for a particular month.

Further, the state transferring coal would be required to schedule the power generated from the coal and pay the corresponding tariff.

Case 3: Flexibility in the utilisation of coal aggregated with the state in CGSs and vice versa.

In the case of availability of additional capacity for power generation and lack of sufficient coal at the CGS, any state utility having surplus coal could approach the central generating company for supplying it and availing of the electricity generated thereof.  On the other hand, the generating company could also approach any state utility for coal supply. However, the company would first approach the original beneficiaries and in the event of their inability to supply additional coal (with the consent of the original beneficiaries), it would approach any other state for coal supply.

While undertaking the transfer of coal, the state utilities must ensure that the variable charges of power generation (along with other charges) in the coal receiving state are less than the cost of electricity generation at their generating stations.

As mentioned in Case 2, the techno-commercial feasibility for coal transfer would be worked out beforehand in consultation with POSOCO, subject to transmission system availability. Further, the state supplying additional coal would be responsible for scheduling the power generated from coal. The generating company would intimate the CEA, which, in turn, would inform the regional load despatch centres (RLDCs)/RPC regarding the coal transferring arrangement. The RLDCs/state load despatch centres (SLDCs) would then facilitate the scheduling of power as per mutually agreed terms and conditions of the transferring arrangement.

Case 4: Flexibility in the utilisation of coal by any state/central generating company at the generating stations of IPPs

The MoP would separately notify the methodology for flexibility in the use of domestic coal at the generating stations of IPPs.

Case 5: Flexibility in the utilisation of coal assigned to the central generating company at their own plants or at other more efficient plants.

The central generating company would have the flexibility to use the coal at the more efficient generating stations including the stations of their joint venture and subsidiary companies. In the case of availability of additional margin for generation at any other CGS, the company could also approach other CGSs for supplying additional coal. However, the consent of the original beneficiaries of the CGSs would be taken into account before making such an arrangement. Also, the coal transferring company must ensure that there are savings in coal transportation costs as well as a reduction in the energy charge of electricity generated with the diverted coal. Further, as in Case 3, transmission constraints, if any, would be taken into consideration before finalising the coal transfer arrangement. Also, the CEA would inform the RLDC and RPC about the coal transferring arrangement – the scheduling of power would be done by the RLDC concerned and accounting would be done by the RPC concerned. The RLDCs/SLDCs would facilitate the scheduling of power under the arrangement.

Net, net, the CEA’s methodology for flexibility in the use of domestic coal is a welcome move. Besides lowering the cost of transportation, it would enhance the efficiency of power generation in the country. Overall, the policy is expected to bring about a significant reduction in the cost of power generation.


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