In a significant development, state-run NTPC will soon procure one million tonnes (mt) of thermal coal from commercial miners on a delivered basis, a development that can help create a reliable and cost-effective supply chain for the critical resource, which accounts for over 70 per cent of India’s power generation.

Sources said the country’s largest power generator will procure 1 mt coal from commercial mines. It was finalised last month and a tender for the same will be floated soon, which will be on a delivered basis. If the arrangement works out, more quantities will be procured from the private sector. This will help reduce imports by the power sector.

“Commercial miners are keen to supply coal to the power sector on a delivered basis. It’s a win-win. Consumers will get coal at plant head on an assured and cost competitive basis, while miners will get a market. This also helps consuming sectors, who in times of peak demand season have to procure coal at higher prices through e-auctions,” explained one of the sources.

In March this year, Coal Secretary Amrit Lal Meena told businessline, “With wider contributions from captive and commercial mines, the availability of coal to users will be better. Resultantly, pressure on CIL coal auctions will reduce. Hence, the premium on auction will go down and coal will be cheaper for consumers. This, in turn, will help reduce cost of production for all coal-based industries.”

Diversifying sources

Another source said that if the arrangement between NTPC and the miner works out then in the medium to long term, India can have a robust commercial coal market with competitive pricing strategies. This will also reduce the dominance of state-run Coal India, which currently accounts for almost 90 per cent of India’s production of the dry fuel.

“If this works out, then in the medium to long term, it can alter the contours of fuel supply agreements (FSAs) and to some extent the power purchase agreements (PPAs) as power producers will have various options to procure the fuel at competitive prices,” a top state power department official said.

Siddartha Keshavadasu, Associate Director (Power Advisory) at Nangia & Co, pointed out that diversifying coal sources is a strategic move for NTPC, aiming for a more reliable and cost-effective fuel supply.

“By sourcing from commercial mines, NTPC can reduce coal costs and enhance power generation efficiency. This introduces competition in the traditionally CIL-dominated market, potentially leading to better pricing and service quality. While CIL has been a key player in India’s coal industry, alternative suppliers will introduce market competitiveness and incentivise CIL to adopt more efficient practices,” he added.

Resilient supply chain

In the long term, Keshavadasu opined that the strategy promotes a resilient coal supply chain, mitigating risks of supply disruptions and price volatility. Regulatory oversight will be crucial to maintain fair pricing and market stability, ensuring any price escalations are controlled.

“NTPC’s initiative reflects a shift towards market-driven approaches in the energy sector, promising cost savings and a robust power generation landscape. This development underscores the evolving nature of the coal market and the ongoing efforts to optimize fuel procurement practices in the power sector,” he added.

Commercial coal block auctions were launched in June 2020. Since then, nine rounds have taken place, and the 10th round was launched in June 2024. So far, 107 coal blocks with 256 mt peak rated capacity have been auctioned, of which 11 blocks have been operationalised. During FY24, 17.5 mt coal was produced from such blocks.

The cumulative coal production from captive and commercial mines rose by a healthy 27 per cent Y-o-Y to hit a record 147.2 mt in FY24. The Coal Ministry aims to enhance the production by around 20 per cent in FY25.

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