December 20, 2011 / 18:38 IST
Fitch Ratings has come out with its special report on power projects. According to the rating agency, due to the increasing cost of imported coal, which has doubled to about USD120/tonne currently (over FY09 prices), the variable cost of power generation has surged.
Coal shortages and rising international prices affect credit qualityRising Cost of Generation: With the sector heading for a sizable coal shortage and the proposed coal rationing in India, many generators will be compelled to source costlier imported coal. Fitch Ratings estimates this would increase the cost of generation to at least INR4.41/kilowatt/hour - assuming use of 100% imported coal - from the current average of around INR2.29/kWh. Due to the increasing cost of imported coal, which has doubled to about USD120/tonne currently (over FY09 prices), the variable cost of power generation has surged.Passing on Fuel Costs: Power projects, which have no provisions to pass on fuel costs, face massive pressure from these rising costs. This could mean a severe shrinkage in margins and, in some cases, even render projects unviable at current average spot tariff levels. Merchant power prices have been declining steadily over the last four years and are currently in the INR 3.75/kWh
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