A Thermal Power Producer Tackles Challenges Head-On

A coal-based thermal power producer substantially boosted its EBITDA amid rising expenses and regulated revenues.

A leading coal-based thermal power producer found itself in a bind. Owing to a significant increase in the cost of coal, its production costs were rising materially. Simultaneously, it had little ability to compensate by increasing the prices it charged customers, as these were regulated. The result was a negative EBITDA (earnings before interest, taxes, depreciation, and amortization).

The company sought to determine what, if anything, it could do to improve the situation. Working with BCG, the power producer designed a multipronged plan of attack.

Four Steps to Improved Numbers

First, the team created a digital coal-blending solution that increased the plant’s flexibility regarding the characteristics of the coal it could use. This lengthened the producer’s list of potential suppliers and reduced input costs, resulting in an annual savings of approximately $15 million.

Second, the team identified additional means of boosting revenues. One involved designing a program to enhance revenue generated by the plant’s sale of ash, which is a byproduct of the producer’s operations. The team also created a digital tool to enhance planning for, and associated revenues from, future power generation. The tool helped the producer maximize generation during periods of low coal prices and minimize it when coal prices were high. The tool also helped optimize the plant’s maintenance schedule and the producer’s strategy for exploiting coal futures prices (within regulatory constraints).

Third, the power producer and BCG overhauled the producer’s management of working capital and reduced financing costs through the sale and leaseback of assets.

Finally, the team optimized non-fuel-related spending and revenue. To achieve this, team members improved the efficiency of operations of a port berth the company had leased to receive and transport coal. They also created an additional sales channel for the disposal of surplus coal.

The combination of measures hit the mark, pushing the producer’s EBITDA from negative to positive. The team also established a suite of digital tools and a program centered on a monthly review of operations to ensure that operating costs would continue to receive sufficient focus.