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Flexibility in coal utilisation positive for discoms: Icra

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Mumbai: Government’s decision to relax norms for utilisation of domestic coal by state and Centre-owned generation utilities is positive for discoms as it would help lower transportation and power purchase costs, ratings agency Icra said.

The Union Cabinet yesterday gave its approval for allowing flexibility in utilisation of domestic coal that would help in reducing generation cost by 40 to 50 paise per unit and in the next four to five years, could lead to savings of Rs 25,000 to Rs 30,000 crore per year.

“The flexible utilisation of coal linkages is a positive development for the distribution utilities as it would result in an optimal utilisation of the linkage coal from mines and help lower the transportation cost of domestic coal used, which in turn will lead to reduction in cost of power purchase,” Icra Senior Vice President Sabyasachi Majumdar said in a statement.


The government’s proposal envisages that all the long term coal linkages of individual state generating stations shall be clubbed and assigned to respective states or state nominated agencies.

Similarly, coal linkages of individual central generating stations shall be clubbed and assigned to the company owning them, so as to enable efficient coal utilisation or allocation among end use generating stations.

From the distribution utility perspective, relief in cost of power supply would be dependent upon the sourcing mix of coal-based energy and average distance travelled for coal transportation for generation utilities in the state.

According to Icra, the average cost of supply for distribution utility is estimated to decrease by 7 paise per unit for every 100 km reduction in distance travelled for transportation of coal, assuming that the distribution utility procures 60 per cent of its overall power requirement from coal based generation stations, with the balance being from other sources such as hydro and renewable.

“In case the mix of coal based generation in the procurement is higher at 75 per cent, the relief in cost of supply is estimated to be higher at 9 paise per unit,” Majumdar added.