How to set up a power plant with your own coal mine

Vol 10, PW 17 (14 Dec 06) Midstream & Downstream

Proposed new power plants and existing ones will receive top priority in the allocation of captive coal mines to generate electricity.

Thats the key recommendation from an exhaustive set of guidelines published by the power ministry on 2nd November to deal with requests from power projects wanting captive coal blocks. Coal and not gas, argues the power ministry, will be the fuel of choice for power stations because of the high price of LNG and Indias abundant (though poor quality) coal reserves.

In India, the coal ministry controls the coal industry but power projects get first priority over all other consumers for the allocation of coal. Expansion projects (by State Electricity Boards) will have higher priority than new projects, confirms the power ministry, because they have a shorter gestation period.

Next are joint venture state-owned projects or a private-public venture where the state-owned company has a substantial say in management. Independent Power Projects (IPPs), which have received tariff approval by the tariff commission under section 63 of the Electricity Act 2003 are ranked third.

Fourth ranked will be the recently announced Ultra mega power projects and similar projects set up by distribution companies or State Electricity Boards (SEBs). Expansion of existing IPPs already supplying power to the grid and captive power plants supplying at least 25% of their capacity to the grid will be ranked next.

Sixth ranked will be other captive power plants followed by merchant power plants of between 500-MW and 1000-MW capacity. Last will be any other category not covered above.

Strict eligibility criteria will govern the allocation of captive power blocks to IPPs and merchant plants. Learning from past experience, the power ministry doesnt want a situation where captive coal blocks allocated to different industries stay undeveloped.

Among these criteria are: net worth of the company, internal resource generation and annual turnover. In addition, bank guarantees of a reasonable amount will be required and these will be encashed if important milestones for the development of coal blocks are not achieved.