India could soon run out of coal. So why is a country with such large reserves facing shortages?
India is on the brink of massive power shortages, with the country’s power plants running dangerously short of coal.
According to Reuters and The Financial Times, which cited government sources, more than half of India’s coal-fired power plants will run out of power by the end of the week.
So how did the second most populous country in the world get to this point?
Here is a summary of the factors that led to the coal shortage in India.
What are the current inventory levels?
As of September 29, 16 of India’s 135 coal-fired power plants had no coal stocks, according to the Central Electricity Authority (CEA).
More than half of the factories had stocks that lasted less than three days, while more than 80 percent had less than a week of stock.
Coal accounts for over 70 percent of India’s electricity production, and utilities account for about 75 percent of India’s coal consumption.
What caused the coal shortage?
India’s industrial electricity demand has increased since the second wave of the coronavirus pandemic.
On top of that, a growing price gap between lower domestic prices and record world coal prices has led buyers to shy away from imports.
The state-owned Coal India, which produces more than 80% of India’s coal, said that an increase in global coal prices and freight costs has led to a reduction in electricity production by coal-fired power plants. imported.
This has added to the pressure on utilities using domestically mined coal to increase production.
Why are the prices between national and world coal widening?
Domestic coal prices in India are largely decided by Coal India.
An increase in coal prices usually has a ripple effect on electricity prices and inflation, making a rise a politically sensitive decision.
Indian coal has kept prices stable over the past year, despite the sharp increase in global coal prices during the same period.
Although the president of the company has said that prices will eventually rise, it is not immediately clear when that will happen.
Meanwhile, benchmark coal prices in Asia have reached record highs in recent times, supported by global demand for fuels for power generation as economies open up.
A major energy crisis in China is the latest event driving global demand for fuel.
Why are utilities unable to pass on the higher costs?
Electricity tariffs in India, set by the respective states, are among the lowest in the world, according to the globalpetrolprices.com website, as state-run distribution companies absorbed higher input costs to keep prices stable.
This has left many of these companies deeply in debt, with cumulative liabilities running into the billions of dollars.
Stretched corporate balance sheets have systematically triggered payment delays to power producers, often affecting cash flow and offering little incentive to invest more in the power generation sector.
Indian power producers bound by long-term agreements with distribution utilities often cannot pass on higher input costs unless clauses are included in their contracts.
What does the Indian crisis mean for the global coal markets?
India is the second largest importer, consumer and producer of coal and has the fourth largest reserves in the world. It imports mainly from Indonesia, Australia and South Africa.
CRISIL, a unit of rating agency S&P, says it expects Australian and Indonesian thermal coal prices to rise over the remainder of the year due to supply constraints and the strong demand from China and elsewhere.
India’s average weekly coal imports from August to the end of September, when global coal prices rose more than 40% to all-time highs, fell more than 30% from the seven-year average. first months of the year to just under 3 million tonnes, according to data compiled by Kplr.
Total imports for the most recent week were below 1.5 million tonnes, the smallest in at least two years, and the websites of major coal-importing utilities showed no new tenders for new shipments this month.
Who are the winners and the losers?
Shares of Indian power producers NTPC, Tata Power and Torrent Power, and Coal India have risen sharply in recent weeks, driven by growing demand for electricity.
An official from a large utility operator said that many traders who bought coal at national spot auctions sold the fuel at high prices.
Many non-consumers of coal and import-based power plants have cut back on production due to high foreign prices.
While large-scale blackouts like those in China seem unlikely in the immediate future, parts of the country could face power outages, officials said.
Reuters / ABC