According to sources, Essar may be planning to put a tariff rate of Rs 4 per unit for the 120 megawatt power and may currently sell it in the day-ahead market. The move is basically to ensure the sustainability of the project, and yet not fall prey to the volatility that is rattling the sector.
Sources further said that looking at the erratic price movement of imported coal, selling power in the open market stands as a better option than getting into a contractual obligation. They explain that such contractual obligation can weigh the company down if fuel price shoots up.
However, sources also said that this will be a short term arrangement. Depending on demand, the company may increase the tariff rate to Rs 5 per unit over time. But in the long run, Essar is interested in signing 25-year power purchase agreements with interested off takers.
Considering the current market situation, experts believe that no power plant can be sustained on a captive basis. They say that to maintain 80% to 85% plant load factor and to make profit, the company has to resort to merchant selling.
The channel has also learnt that while this project will be fuelled with imported coal only, Essar may source some from its own mines and buy the remaining from the open market.
But then is tariff rate of Rs 4 per unit viable enough? Sources said that Essar finds the decided tariff rate to be good enough for the time being because currently spot prices of imported coal have come down by $10-15.
However, with an eye on volatility, the company has kept an option open to increase price as per requirement. Experts on their part feel this tariff rate will hold water in the short term, as long as imported coal prices stay where they are.
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