Unlike for most other raw materials and commodities, there is no free-market price formation for lignite used in power generation. This is because its low calorific value makes transport uneconomic over longer distances: the cost of lignite per unit of energy, including transport, would be higher than hard coal, its main competitor. Hence, a lignite mine cannot offer its product to far away power plants.
Similarly, lignite-fired power plants cannot purchase fuel from distant mines. Both producer and consumer co-exist in a captive market. Without a minimum number of suppliers and customers, no transparent formation of prices on the free market is likely to occur. In comparison, the international market for hard coal benefits from a large number of suppliers and customers.
For these reasons, it is common to build lignite-fired power plants adjacent to lignite mines. A power plant and surface mine then form a single economic entity Lignite is then most economically transported by dedicated infrastructure – typically a conveyor belt –delivered directly to the nearby power plant.