Consumers will have to brace for significantly higher power prices: IIFL

Key input costs such as those of coal and gas have seen a big rise in the last few weeks. As commodity prices across the board are surging, Harshvardhan Dole, Vice President-Institutional Equities at IIFL shared his views on what this means for power players today.

According to him, the Indian power sector over the last decade or so has undergone a structural change. There has been a lot of consolidation and to that extent, whoever is currently generating and supplying power operate on a cost plus basis. And any increase in coal price or the import of coal ideal is a pass-through in the cost plus mechanism. To that extent none of the generators are exposed to increase or decrease or volatility in the coal prices.

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In reality, the state electricity board don’t have propensity to pay for this power and to that extent if coal prices shoot up to the extent, which has been speculated, at a time when India is running short of thermal capacity, there will be issue in terms of receivables for several generating companies. The end consumers will have to brace for significantly higher power prices if they are concerned about having reliable supply. “So tough times ahead for us,” he said.