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INTERVIEW-Japan's TEPCO to tap more coal suppliers to cut costs

* Plans first term deal for low-cost, low-calorie grade -traders

Move offers rare chance for miners who may not have considered Japan

* TEPCO coal consumption to double to 6.2 mln T next yr

By Yuko Inoue

TOKYO, Oct 29(Reuters) - Japan's biggest utility, Tokyo Electric Power Co (TEPCO), plans to buy coal from a wider group of suppliers in a drive to cut costs as it starts operations of new coal-fired power stations, a company official said.

It would be the first time that Tepco, battered financially by last year's Fukushima nuclear disaster, was buying cheaper low-calorie sub-bituminous coal through term contracts, traders said.

``We'll do anything we can to cut fuel costs,'' Susumu Kose, a senior manager of Tepco's coal group, told Reuters in an interview, adding that the company would step up purchases of the sub-bituminous coal.

``We plan to expand our portfolio of coals so that we see more competition among suppliers. Our coal supply base is limited and there hasn't been much competition among suppliers.''

Tepco expects to double coal consumption to 6.2 million tonnes next year, to feed a doubling in the capacity of its coal-fired plants to 3,200 megawatts. Its use of coal to generate electricity is expected to nearly double again by 2021, Tepco said in a business plan submitted to the government.

The company could hold auctions as soon as this financial year to contract out construction of three coal-powered plants of 2,600 MW total capacity to independent power producers so that it can buy electricity from 2019.

That will boost the ratio of its coal-power generation to around 17 percent by 2021, compared to 8 percent in 2011.

PREMIUMS BOOSTED

Limited sources of supply and the emergence of China and India as major spot buyers have boosted premiums for power firms in Japan, the world's second biggest importer of thermal coal, mainly in the past two years, the country's coal producers say.

That coincided with a rise in demand for fossil fuels by the Japanese firms, which have scoured the world for more coal, liquefied natural gas and oil to run power stations as all but two of Japan's 50 nuclear reactors stay shut for safety checks.

China emerged last year as the world's biggest coal buyer, taking 139 million tonnes, against 116 million tonnes by Japan. Asian countries buy 550 million tonnes of thermal coal a year, more than double the figure for Europe, to power growth that usually beats Western industrialized nations.

Tepco's supply diversification promises opportunities for producers of cheaper coal meeting Japan's environmental norms.

``There should be a lot of such miners who had never thought of approaching Japanese power companies, which rarely tap new supply sources,'' said Masaki Mita, the Japan representative of energy research company Argus Media Ltd.

Partly to meet strict environmental rules, Japan's utilities typically buy premium coal from specific mines under long-term contracts, except for the two biggest coal buyers, J-Power and Chubu Electric, which consume a quarter of total imports, Mita said.

High-calorific coal from Australia's Bulga and Hunter Valley areas is among the most widely used in Japan, though Indonesian sub-bituminous coals are gradually grabbing more market share. Indonesia is the biggest supplier of the fuel in Asia.

MORE COAL, LESS OIL

For Tepco, increasing low-cost coal power generation will help offset a fall in nuclear power generation and cut ballooning fuel costs of 2.29 trillion yen ($28.57 billion) that eat up nearly half its revenue.

Japan's new energy policy, announced in September, aims to boost use of coal-fired plants for baseload power generation to reduce reliance on nuclear power after the Fukushima disaster.

A devastating earthquake and tsunami in March 2011 caused three reactor meltdowns at Tepco's Fukushima Daiichi station, leading to the world's worst atomic disaster in 25 years.

It forced about 160,000 people from their homes, many never to return because contamination will persist for decades.

Tepco's top priority in cutting its fuel bills is trying to restart another nuclear plant, Kashiwazaki Kariwa, which is the world's biggest, but the use of more coal and less fuel oil, and a cut in LNG costs, are key to its plan to return to profit.

``Coal is the cheapest among fossil fuels, followed by LNG, while fuel oil is the most costly of all,'' said Yoshitaka Ozaki,

an associate in Tepco's fuel department. ($1=80.1650 Japanese yen)

(Additional reporting by Risa Maeda; Editing by Clarence Fernandez)