What explains the supply crunch in India’s coal-fuelled power plants?

However, it is worth asking what led to a supply crunch in the world’s second-largest producer of coal in the first place.

A number of factors are to blame. International prices of coal have surged, which has increased the demand for local coal. Power demand, and therefore the derived demand for coal, has increased sharply in the past couple of months, perhaps a reflection of pent-up demand on account of the disruption from the second wave of the Covid-19 pandemic in April-May. 

Coal producers are still trying to catch up with this spike in demand. Excessive rainfall, especially in the coal-producing regions of Jharkhand, Odisha and West Bengal, have added to the problems. 

Also, demand has recovered sharply from the disruption caused by the second wave of Covid-19 infections to derail the seasonal planning between coal producers and power plants.

Global coal prices are at their highest ever levels

Coal prices touched a record in August 2021, as per the primary commodity price database of International Monetary Fund. Its coal price index was at 95.41 in August 2019. That fell to 79.45 in August 2020 and has displayed unprecedented momentum since then to reach 231.34 in August.

Prices likely have increased further since. “Asia’s coal price benchmarks have hit record highs in the recent times, buoyed by global demand for power generation fuels as economies open up. A major power crisis in China is the latest event driving global demand for the fuel,” Reuters news agency reported on October 1.

The rise in global prices has led to an increase in production cost at power plants that depend on imported coal. 

This is likely to lead to a reduction in the plant load factor – a measure of capacity utilisation – in plants that depend on imported coal. This will likely put additional pressure on power utilities using domestically mined coal.

“Ind-Ra estimates an increased imported coal requirement likely in 2HFY22 (second half of the financial year to March) as domestic coal production would increase gradually. Alternatively, in case the PLFs of imported coal-based power plants would continue to remain low due to high international coal prices, Ind-Ra estimates the energy deficits are likely to increase in 2HFY22”, said an October 4 note by India Ratings and Research, a securities rating agency.

What led to a supply crunch in coal on the domestic front?

If Coal India is to be believed, thermal power plants are to blame for the crisis. Coal stocks plunged since August as power utilities allowed them to, a person aware of the development said on condition of anonymity, and that the matter was flagged to appropriate authorities.

Coal stocks were at a comfortable level of 28.4 million tonnes (MT) at the beginning of the financial year, Coal India said in a statement. 

Even at the end of July, coal stock at power utilities was 24 MT, at par with the five-year average. It was in August that stock at power plants fell by over 11 MT. 

“Had the power utilities maintained the CEA-prescribed normative stock of 22 days the low coal stock situation could have been averted,” the miner said on September 29 . CEA is short for Central Electricity Authority of India.

However, analysts believe the problem does not lie with power plants alone. “The speedy recovery in power demand post the second wave of Covid-19 infections, coupled with lower than adequate domestic coal production, led to a reduction in coal inventory levels at various power plants,” said a note by India Ratings and Research.

Production by Coal India increased marginally to 209.2 MT in August compared with production of 195 MT in the same month last year. 

Furthermore, coal offtake by thermal power plants increased to 259.6 MT in August compared with 208.35 MT in the year-ago period.

Coal India said on September 29 that it is doing everything to manage the crisis. It is seeking to boost supplies to power utilities and build adequate stocks. 

In the past three days, the miner has pushed up its supply to power plants to 1.4 MT per day. Supplies to coal-fired plants from October are aimed at 1.5 MT per day that will go beyond 1.6 MT in due course, it said in a statement on Tuesday.

The Union power ministry said a core management team (CMT) is monitoring coal stocks and despatches every day to ensure follow-up actions with Coal India and the Indian Railways to improve coal supply to power plants. The ministry on August 27 formed CMT to ensure equitable distribution of coal.

Continuous rain in August and September this year led to lower despatches from coal mines, the ministry said in a statement. Despatches have picked up again and will increase further, it said. 

“The average stock of coal in power plants was for about four days on 03.10.2021. However, this is a rolling stock, the coal is dispatched through rakes every day from the coal mines to thermal power plants,” it added.

The coal ministry said in a statement: “Availability of additional coal will ease pressure on power plants and will also aid in import-substitution of coal. The allowance for sale prescribed quantity of coal or lignite shall also motivate the lessees to enhance the production from the captive mines.”