Merchant power cos under pressure

Lower merchant power rates and higher coal prices would ensure sustained pressure on profitability of non-integrated companies. The performance of Indian companies with large exposure to merchant power sales could remain under pressure, with a likely decline in earnings as a result of lower merchant power tariffs and rising coal prices. This especially holds true for non-integrated players. Thermal coal—a key input for power generation—has become costly in the global markets in the recent months. Additionally, India’s largest coal producer, Coal India, also increased the price of coal by 30 per cent for non-regulated (spot sales) power generation companies. Industry estimates suggest that demand from China and India could drive coal prices towards $150 a tonne. Given the nuclear crisis in Japan, preference towards coal-based power pla­nts would put further pressure on prices.