NEW DELHI | Dec 22, 2016: The government has allowed public and private power producers to swap their coal supplies with a view to reducing the cost of electricity by ensuring more efficient fuel usage. It may eventually extend the facility to other coal-consuming industries.

“I would like to see the coal sector open up and achieve the next level of efficiency in power generation. Guidelines for coal swapping would be out in the next 30 days,“ power and coal minister Piyush Goyal said on Wednesday after launching a portal to facilitate such swaps.

The government's latest move is an extension of its May 4 decision allowing states freedom in utilising coal allotted to their power stations, a move that Goyal had then said would reduce cost of generation by 40-50 paise per unit and lead to savings of Rs 25,000 crore per annum in 4-5 years by enabling supplies from mines closer to the plant.

On Wednesday , Goyal said he envisioned coal swapping to become a “cross-sectoral“ initiative and not remain confined within the power sector. Such widespread freedom to swap coal supplies will set the stage for free trading of coal and prepare the sector for eventual deregulation, industry observers said.

Swapping between private and state entities is also aimed at improving the consumption of domestic coal by the industry , mainly the power sector, against the backdrop of high production and tapering demand on the back of reduced traction for power plants.

Under the coal use flexibility plan announced in May, all long-term coal linkages -supply quotas from specific mines -of individual power plants in a state are clubbed together and put under the charge of the state government or its nominated agency . Similarly coal linkages of individual power plants of central generation utilities would be clubbed together and put under the charge of the entity .

States or the central utilities are then free to make bet ter use of the allotted coal by using them to fire more efficient plants for higher generation rather than waste them in old, inefficient plant for less-than-desired output.They can also swap supplies to rationalise transportation of coal from mines nearer to the plants.

In case a state decides that it could get better value by sourcing power generated using this coal to fuel a private power station, the electricity has to be procured through bidding amongst competing private sector plants. The state has to then mention upfront the source, quantity , quantum and delivery point for the power.

In case a state or central utility decides to move around coal among its own plants, the deciding criteria would be on plant efficiency , coal transportation cost, transmission charges and overall cost of power.

Earlier, the government had allowed swapping of coal mines by users so that transportation cost can be reduced for generation of power. The government has allowed coal swapping in 19 blocks, which brought down the cost of power generation as users were able to source fuel from mines located closer to them.

(Source: http://timesofindia.indiatimes.com/)