India faces the prospect of large-scale power outages as the country's power plants are running dangerously low on coal, the fuel that accounts for 70% of the country's electricity production.
According to data from the Central Electricity Authority, 67% of the 135 thermal plants tracked had only four days of Coal supplies or less. At the beginning of August, these plants had a 13-day supply on average. What's worse is that 16 of these plants have completely run out of supplies and 75 have supplies for three days or less.
The demand for electricity is increasing with the resumption of economic activity in the country. Energy demand in August 2021 was 17% higher than the pre-Covid-19 August 2019 level, according to the government.
In front of the world record Coal Thanks to strong demand and an increase in freight costs, Indian buyers have avoided importing the fossil fuel in recent months. Instead, they have relied primarily on national actions. That has reduced the national stock to the lowest level in more than three years, with state ownership Coal India could not keep up with the increase in local demand. Coal India, which produces more than 80% of the country's coal, increased production towards the end of August but was facing bottlenecks in transporting coal to power plants. The company has maintained
prices unchanged over the past year.
The actions of most companies in the energy business and coal mining have seen a positive impact from this increase in demand. The script of Coal India and other power producers such as NTPC, Tata Power and Torrent Power have increased between 5% and 30% in recent weeks.
Coal India produced 42.6 million tons of coal in August, an increase of almost 15% over the same month last year. Its production in September was approximately the same as last year, with 40.7 million
tons. Excessive rains in the coal mining areas of Jharkhand, Chhattisgarh and Odisha in August and September exacerbated the problem, leading to a reduction in shipments during the period.
The price of coal from Indonesia, one of India's leading suppliers, has risen more than 200% since March. India mainly imports coal from Indonesia, Australia and South Africa, in addition to Colombia, Russia, Kazakhstan and Mozambique.
Coal India had warned the Energy Ministry of a possible crisis as early as February 2021. The company told power generators to increase their coal stocks ahead of the monsoon. Despite his request, utilities were using existing reserves and limited new purchases amid increasing power production. Most power plants also did not adhere to the guidelines of keeping a coal stock of 22 days. This may have been a mistake on the part of the power generating companies. Electricity generated from coal increased 20% in the first eight months of this year.
However, government officials have now pointed out that the drop in coal supply it is not causing any energy crisis. Based on data available with the Power System Operation Corporation, or POSOCO, grid regulator, there is currently no power shortage in the country.
A senior coal ministry official told Business Standard that the mismatch between supply and demand would not affect consumers in any way like in other countries. But Energy Minister RK Singh told a national daily that the coal crisis could last up to six months. He added that energy demand generally started to decline in the second half of October, but the situation at this time was uncertain.
In China, for example, several provinces have begun rationing energy to conserve fuel ahead of the peak winter demand season. The power shortage in that country has reached such a point that homes in some parts are experiencing power outages without warning.
According to an estimate by Goldman Sachs, up to 44% of China's industrial activity has been affected by power shortages.
China's order to its state energy companies to secure coal supplies to avoid any winter shortages is driving up prices for other major importers such as India.
At the same time, some local authorities are also restricting energy use by industry to meet energy consumption and efficiency targets set by China's central government. China has promised to reduce energy intensity by around 3% in 2021 to meet its climate targets.
Although India is on an aggressive path to increase the share of renewables in its energy mix, coal remains the backbone of the energy sector. India's dependence on coal also contributes greatly to its trade deficit. To address the current crisis and assist in import substitution, the government has allowed captive mining companies to sell 50% of their annual production on the open market. Additionally, to avoid a mismatch between supply and demand, the Ministries of Energy and Coal have jointly decided to prepare a coal supply program for thermal power plants.
The goal is to build a 40 million ton reserve at the power plants by March, marking the beginning of the period of high energy demand. The current stock stands at 7.6 million tons.
Any power outages in the industry will hurt India's rebound as the economy is rebounding from a historic 7.3% contraction in fiscal 21. In fact, Jindal Steel and Power cautioned that steel prices are expected to increase in the coming months, as companies are buying coal at three times the rates of just a month ago.
While blackouts like those in China seem unlikely in the foreseeable future, Indian power producers will need to increase domestic coal purchases, as well as imports, regardless of price.
