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India may be staring at an acute power crisis this festive season with half of the country's thermal power reducing generation. This is because coal inventories hit critically low levels while the surge in power demand post the COVID-induced lockdowns is not being supported by record global prices of fuel, which has shot up more than three times in just over a couple of months.
The situation is critical for state-run power generation units where poor financial condition of utilities has prevented them from proper stocking of coal.
"Global developments are now having a play in the Indian markets too. Sharp uptick in economic activity with the easing of the COVID pandemic has pushed up power demand with major industrial states such as Maharashtra, Gujarat, and Tamil Nadu seeing demand rising between 14 percent and 20 percent in the last three months," said a power sector analyst from one of the four big audit firms.
"To meet this demand, additional coal is required. The production from Coal India is low now, as monsoons have just ended when the production is typically low. Imports are not an option, as global prices have touched historic high levels," he added.
The development in the Indian market is a reflection of what is happening globally. Like in India, increased vaccinations and lowering of COVID scare have scaled up industrial activities, taking economies from Europe to Asia to a situation where demand has outpaced supply, resulting in energy shortages.
For India, the competition in the global coal market is coming from China, the world's largest coal consumer. Large scale shortage in China has meant that it is going on a coal hunt worldwide to address the energy crisis at home.
What the high global coal prices have done is that it has prevented domestic generation companies from buying coal abroad to meet the local rise in demand.
In fact, several of the country's imported coal-based power projects have also reduced generation rather than supporting production through expensive buys.
As per a Crisil study, in April-July, non-coking coal imports by the power segment were at the same level as in fiscal 2021, and down 37 percent compared to fiscal 2020.
The situation of fuel is particularly grim for non-power sector users, leaving players with stocks for 4-5 days only. Dispatches from CIL and SCCL were down 1.5 pert cent at 64 MT compared to 65 MT dispatched in April-August of fiscal 2020.
As the demand rose, spot e-auction premiums for August 2021 increased to 74 percent compared to 30 percent in the first quarter of this fiscal and 25 percent in fiscal 2021.
"Coal inventory at thermal plants will improve only gradually by March next year. For this fiscal, it will hover around 10 days compared to the two-year average of around 18 days," it added.
This would mean that the crisis would continue through the festive season with Coal India scrambling to meet the rising demand for fuel in the absence of support from imports.
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