OREANDA-NEWS. January 14, 2013. Essar Power Limited, a subsidiary of Essar Energy plc [LSE: ESSR], the India-focused integrated energy company, announced that the 600-megawatt (MW) unit 1 of its 1,200MW Mahan I power project has commenced generation and has been synchronised with the transmission grid.

Mahan I, in Madhya Pradesh, India, is Essar Power’s eighth operational power plant, taking its total generating capacity to 3,910MW, compared with 1,220MW at the time of the company’s IPO in May 2010.The 600MW Mahan I plant is the largest single power generation unit commissioned in Madhya Pradesh.

The Mahan I plant uses a combination of imported coal and coal sourced from Coal India’s e-auction process, while an application has also been made for an interim tapering coal linkage allocation from Coal India. Coal from these sources will be required until Essar Power’s nearby Mahan coal block becomes operational. Essar Power received stage 1 forest clearance for the Mahan coal block at the end of October 2012.

Naresh Nayyar, the chief executive officer of Essar Energy, said: “The commissioning of the first unit at Mahan is another major milestone for Essar Energy. With this, we have more than tripled our generation capacity over the past couple of years. Our focus now is on the development of the Mahan coal block which will provide a low-cost fuel source for the power plant, placing it among the lowest cost power generators in India.”

Unit 2 at Mahan I, also of 600MW, is expected to begin commercial operations during the first quarter of the next financial year 2013-14.

The Mahan I project represents a USD 1.2 billion investment by Essar Power. It is the company’s third coal-fired power project to start commercial operations during 2012, with a total capacity of 2,310MW. The 1,200MW Salaya I plant was completed in June 2012 while the 510MW Vadinar P2 plant, completed in November 2012, is providing power for Essar Oil’s Vadinar refinery, where the availability of coal-fired captive power has had a positive impact on refining margins.

The Salaya and Mahan plants will sell the majority of their output to state electricity boards.The other six operational power plants are captive projects, supplying power to Essar businesses. This helps in delivering secure revenues and EBITDA, with the majority of payments based on availability, rather than on power generated, while fuel price and delivery risk lies with the power purchaser.

Essar’s captive plants, with a total capacity of 2,110MW, comprises Hazira (515MW, gas-fired) and Bhander (500MW, gas-fired) supplying the Essar Steel plant at Hazira, while Vadinar (120MW, refinery residue, multi-fuel), Vadinar P1 (380MW, gas-fired) and Vadinar P2 (510MW, coal-fired) are captive to the Essar Oil refinery at Vadinar. The Algoma plant (85MW, gas-fired), is captive to the Essar Steel plant at Algoma, Canada.