Tata Power to increase output of largest power plant

Adding 1,600MW of capacity will make it India’s largest.

Tata Power Co. Ltd. intends to use the added capacity at its power plant at Mundra in Gujarat to sell electricity in the open market to boost profits. The capacity addition, which will demand an investment of US$1.5 billion over three years, will make the plant India’s largest.

The plant, however, is beset by rising coal prices that are eating into its bottom line. Tata Power is lobbying to increase the tariff it charges for its electricity, currently Rs2.26 a unit, to cut mounting losses.

The company won the Mundra project in 2007 by quoting the lowest tariff bid of Rs.2.26. It signed power purchase agreements to sell electricity generated from its Mundra plant to distributors in Gujarat, Maharashtra, Haryana, Punjab and Rajasthan at the bid price.

Tata Power said in February last year that its Mundra project could become a non-performing asset if no decision was taken on increasing tariffs for electricity from the plant.

Selling electricity in the open market from the additional capacity might ease the financial situation for Tata Power. The cost of power in the open market is about Rs.3.5 per unit on an average.