Despite efforts being put in place to revive inventories at power plants, the situation remains critical for the country which meets almost 60% of its energy requirements from coal.
At the end of Sept’21, coal inventory at Indian power plants declined 37% m-o-m to 8.08 million tonnes (mn t) from 12.76 mn t in Aug’21. The current stock is sufficient only for four days of power generation.
Indicating the worrying state of the power sector, 104 of the 135 power plants being monitored by the Central Electricity Authority (CEA) have coal stock levels for lesser than 9 days as on 30 Sept’21.
Rebound in electricity demand with an ease in Covid restrictions has dealt a body blow to the global power market altogether. As a result, even developed nations like China are forced to implement several bouts of power cuts, which is shutting down industrial units.
The prevailing coal shortage suggests that India may face similar consequences, if the condition is not resolved soon.
Supply constraints
The sudden rise in power demand has been a major factor behind the recent struggle in meeting the demand at a time the power plants have shown reluctance to procure additional coal supplies.
But, there is no denial of the fact that domestic coal supplies are beset with inefficiencies, with the country’s largest miner, Coal India Limited (CIL), making slow progress in raising its production and dispatch volumes due to the heavy monsoon rains.
The miner reported a marginal rise in production by 0.4% y-o-y to 40.07 mn t in Sept’21 compared to 40.5 mn t in Sept’20, while the volume fell 5% m-o-m from 42.6 mn t in Aug’21.
CIL did maintain higher dispatches by supplying the excess inventory available at the pit-heads of mines. It is worth noting that CIL had commenced Sept’21 with an opening stock of 49.65 mn t.
Overall, coal dispatches were recorded at 48.42 mn t in Sept’21. Of this, 83% of the volume, to the tune of 40.38 mn t, was supplied to the power sector, an improvement of 5% m-o-m against 38.61 mn t in Aug’21.
However, it provided little comfort to the power utilities as a gradual rise in global coal prices has affected coal sourcing via imports, thereby adding more pressure on CIL to ramp up production.
As per CoalMint’s assessment, Indonesian 4200 GAR prices jumped nearly 150% since the start of CY’21 and are currently assessed at $137.9/tonne (t) on CNF basis.
Data provided by the power ministry shows that imports by power plants have fallen 16% y-o-y to 15.24 mn t during the first five months of FY’22 (Apr-Aug’21) compared to 18.12 mn t in Apr-Aug’20. It is important to note here that state-run power plants have not imported coal for blending for the last three months.
Prolonged plant closures
Also, decline in power generation has failed to revive the condition at power stations.
In fact, power output from conventional sources has come down 10% m-o-m to 108.35 billion units (BU) in Sept’21 compared to 120.97 BU in Aug’21. The impact was also seen on coal-fired plants whose generation volumes were marked 12% lower m-o-m at 78.89 BU in Sept’21.
Nevertheless, the steady decline in coal inventory is partly due to the closure of several power plants, including the ones designed on imported coal which have been non-operational due to issue pertaining to power purchase agreements.
The two mega power projects run on imported coal, of Adani and Tata Power at Mundra, are facing such problems.
As per data provided by the power ministry, only 2 out of the 9 units of Adani’s plant have returned to operation, whereas, all the 5 units of Tata Power’s plant remain suspended as on 30 Sept’21.
Notably, these two plants having a combined installed capacity of around 8,600 MW, accounting for more than half of the total imports by power plants in the previous fiscal.
Although these plants holds a meagre share in India’s overall installed capacity, their closure is compelling the remaining plants to raise their generation schedule.
Adding to that, power generation from hydro stations has decreased 12% m-o-m to 17.82 BU in Sept’21, thereby adding more pressure on the coal-fired plants.
Implications
India’s power tariffs are quite low as state-run discoms (distribution companies) absorb high input costs to keep electricity rates steady. The provision has left many of these companies deeply indebted.
The ongoing scenario has amplified the problem faced by these discoms as they have to procure electricity at elevated prices in the spot market.
As per data provided by the Indian Energy Exchange (IEX), spot electricity prices, following a brief spell of decline in Sept’21, are again on the rise and are currently assessed at INR 9.36/unit as on 5 Oct’21.
Outlook
The present situation in India is not that grave considering the fact that power demand is expected to slow down with the onset of winter.
On the other hand, the case of China is different as it requires more electricity to satiate its heating requirement during winter. Besides, strict norms for emission control are being maintained.
Coming back to India, there is not much incentive for power generating units whose cash flow remains affected by the delayed payments from discoms. So, it is an uphill task for the government to keep these plants operational under the current circumstances.
CIL’s performance is expected to improve post-monsoon, from Oct’21. However, critical stock levels recorded at power plants show that the situation is likely to continue in the near term, keeping demand for domestic coal strong in the process.
Until, the power supplies are stabilised completely, we are likely to see power outages in some pockets. Besides, the prospects of a rise in power costs also indicate a consequent price hike from the end-user industries.
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