Slippages in coal quality leads to higher electricity cost for consumers: Study

A study by the Prayas Energy Group has emphasised the criticality of accurately identifying coal grades, an exercise important for determining coal costs, which in turn drives the cost of electricity generation and the tariffs paid by electricity consumers. 

Given coal’s significance in India’s electricity generation for at least another decade, its impact on all stakeholders in the supply chain, reliable determination and appropriate consideration of quality is crucial.

The report has been prepared by Maria Chirayil, Ashok Sreenivas and Rohit Patwardhan.

It pointed out that slippages in coal quality—between the point it is paid for and the point it is used for electricity generation—is a long persisting issue in India’s Power sector. 

Coal quality at all locations is determined through a sampling process, and, in theory, should not vary vastly if coal is transported and stored appropriately, it emphasised.

Differences between the gross calorific value (GCV) ‘as billed’ and ‘as fired’ should be limited to differences in methodology of measurement (standard vs field conditions) and minor variations on account of transit and storage, it stressed. 

However, in reality, the discrepancies in GCV across the coal supply chain are significant and much above what can be explained by methodology, transit and storage, it pointed out. 

For instance, in certain thermal power plants (TPPs), there have been instances of over a 1,200 kcal per kg (about 30 per cent) slippage in the recent past (Maharashtra State Power Generation Company), which was equivalent to a mark-up of about 61 per cent on the price of raw coal, at current prices. 

Consumer interest

Electricity consumers in India pay a two-part tariff—fixed and variable—for electricity generated by TPPs.

The fixed component of tariff accounts for the capacity charge and is incurred independent of electricity generation by the TPP. The variable component, or energy charge, depends on the amount of electricity generated by the TPP.

Coal India (CIL), through its six steam coal-producing subsidiaries, dominates production in India, accounting for over 76 per cent of India’s steam coal.

Steam coal is classified into 17 grades based on its GCV and each grade occupies a band of 300 kcal per kg. It is priced differently by CIL, with higher grades having higher prices. 

As per the regulations or contracts governing power purchase, the cost of coal is a significant determinant of the price of electricity from TPPs. For instance, the cost of domestic and washed coal made up over 80 per cent of the variable cost in eleven out of Maharashtra’s 12 state power generating stations in FY24, the study said.

“Since the cost of coal is just the product of the quantity purchased and its price, the basis to determine the quantity and the grade of coal (on which the price depends) to be purchased is a matter of consumer interest,” it added.

Fuel costs

Since fuel costs are passed through, electricity consumers pay higher tariffs for higher quantities of lower quality coal, the report rued.

Citing another example, the report said that a case study of NTPC power plants in FY22. NTPC submitted operational data to the Central ERC (CERC) as part of its tariff process included GCV data at the loading and unloading points measured on both Equilibrated Basis (EB) and Total Moisture Basis (TMB) for the period FY18 to FY22.

The crux of the problem is the weakness in coal grade sampling at the mine end and regulatory methodology for determining tariffs.

The NTPC case study revealed that the slippage is roughly of the order of one grade (300 kcal per kg) across the years and irrespective of whether the GCV is measured on EB or TMB. 

“This is well above the expected 1 per cent transit losses. In FY22, the difference of about 300 kcal per kg amounted to an extra payment of about ₹69 per tonne (or 8.34 per cent) of coal at prices prevalent at the time, by NTPC on account of sampling weaknesses,” the Prayas study added. 

On tariff determination, the report pointed out that most State electricity regulatory commissions (SERCs) consider GCV ‘As Received’ for computing electricity tariffs. 

“Since regulatory scrutiny is only introduced at this point, there is no accountability for slippages between the loading point at the mine end and this point of receipt, though legally ownership of coal transfers to the power generator at the mine end. The impact of all such slippages is passed on to the consumer, leaving little incentive to control the slippages,” it added.

To address this issue, the study suggested ensuring reliable coal quality sampling through automated, tamper-proof processes potentially at a location outside the coal mine.

Subject to reliable coal quality determination at the mine end, the study also proposed that the quantity of coal be determined against GCV “As Purchased,” with permitted transit and stacking losses, instead of the currently prevalent practise of using GCV “As Received.” 

A case study of Maharashtra’s state-owned coal TPPs shows that the proposed treatment could result in 13 per cent lower energy charges, it added.

Published on January 16, 2026