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World

Energy Crisis Looms Over India As Coal Demand Outstrips Supply

India is the latest addition in the countries suffering energy crisis after China and Europe have almost run out of coal reserves to meet their electricity demand. India’s depleting coal supply is prompting a possible threat of power crisis in the world’s fastest-expanding major economy.

According to media reports, coal-fired power plants had an average of four days’ worth of fuel on hand at the end of last month, the lowest level in years and down from 13 days at the beginning of August. More than fifty per cent of facilities are on high alert in case of a power loss.

Spot power rates have soared owing to the use of coal in generating over 70% of energy, but supplies of the fuel are deflected from major clients such as aluminium smelters and steel mills.

Similar to China, India is also facing two key challenges. First, the rising demand for electricity for industrial activities, as the industries are rebounding after pandemic resultant curbs are easing down. Secondly, domestic coal output reduced comparatively. The south Asian country fulfills three-quarters of its demand domestically, but heavy rains have inundated mines and key transport routes.

Coal-fired power plant operators are left with two choices, either to pay hefty premiums in domestic auctions to obtain any available local supply, or to enter a seaborne coal market where prices are touching skies. To combat the situation, the Indian government has already drafted rules in case it needs to restart idle power plants.

“Until supplies stabilize completely, we are likely to see power outages in some pockets, while customers elsewhere may be asked to pay more for power,” said Pranav Master, director for infrastructure advisory at credit rating firm Crisil Ltd. “Because of imported coal prices shooting through the roof, plants running on domestic coal have had to do a lot of heavy lifting. Things are expected to get better as the rains abate.” 

The impact of the crisis would be reflected later on the bills of consumers when distribution utilities would get the regulatory approvals to pass on the cost, said Master.

Coal inventories at Indian power plants have come down to 8.1 million tons in the September end,  almost 76% fall in coal inventory from last year, according to government data. At the Indian Energy Exchange Ltd, the average spot power prices have escalated more than 63% in September to 4.4 rupees ($0.06) a kilowatt-hour. 

The rising electricity bills are likely to hinder the production of factories, eventually adding to the inflation in product prices. It may also hamper the work-from-home employees, as even with cutting down the electricity consumption, the output will be affected. 

According to a Bloomberg News study, the economy is expected to grow at a 9.4% annual rate through March 2022,  the fastest amongst the major global economies.

Prime Minister Narendra Modi’s policies have given a massive push to renewable energy and the country’s top billionaires are in a race to add green assets. But, the energy crisis has given a great reminder of the critical role coal plays in the Indian economy. The demand for fuel is expected to rise in the coming years, and India, one of the world’s largest producers of greenhouse gases,  is lagging behind in establishing a strong goal in carbon neutrality.

India’s coal secretary, Anil Kumar Jain said that power plants are currently short of between 60,000 and 80,000 tonnes of coal per day due to persistent rains that have soaked coal mines. Last month’s unusually high rains in Dhanbad, a key coal-mining centre in the country’s east, exacerbated the energy crisis, he added.

Coal India would be in a position to increase supplies by the second week of October to bridge the deficit at power plants, but it will highly depend on the weather, Jain said. However, more time will be needed to replenish the badly depleted stockpiles.

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Harshita Sharma

A financial news enthusiast and a keen observer of the stock market, I bring to you all the updates from the world of business and finance. So, check out my posts and stay tuned with the major (informational) happenings.

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