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Coal Scarcity A Clear And Present Risk, Says Crisil Report

Coal shortage at several power plants continues to linger despite record production by state-run producer Coal India.

The threat of power outages looms as almost 73 per cent of power capacities have less than 5 days stock, a report by Crisil revealed.

It noted that of the total 135 plants with a capacity of 165 GW, nearly 70 per cent were at a critical stage with less than 10 days of coal.

With several states experiencing major shortage, blackouts have become a common phenomenon. This has also forced many manufacturing units to shut operations temporarily.

The situation worsened in October with number of thermal plants at a critical stage in terms of coal stocks rising by 25 per cent in a month.

An analysis of the past 60 months shows monthly average demand from October-December is 97-98 per cent of the year’s monthly average demand and the peak monthly average is pegged at 155 gw over the past 60 months.

What is the stock situation currently?

As per the latest data released by Central Electricity Authority (CEA), 59 non-pit head projects have dry fuel stocks for less than 4 days.

The number of plants with one day of coal stocks came down to 21 with 25,810 MW capacity as on October 20 as against 27 projects with 36,140 MW capacity as on October 13.

Plants with two days of coal decreased to 18 from 20 a week ago.

According to experts, power demand is expected to moderate with the onset of winter. They also expect the coal stock situation at power plants to further improve in the coming days with the government’s efforts to scale up supplies.

A core management team was set up by the Centre in August to ensure supply of coal to plants with stocks at critical levels.

Surge in power demand – a good sign or bad one?

Refuting reports of coal supply shortages faced by thermal power plants, power minister RK Singh said that significant increase in power demand is in fact a good sign of economic recovery, especially after the second Covid wave.

However, power plants have been scrambling to maintain stocks.

Power demand recovered sharply with peak demand higher in 5 years through September. Monthly growth averaged around 4 per cent.

Base demand has clocked 13 per cent growth year-to-date. Volatility in base demand has also risen sharply over the past two years, and peak demand growth has been higher at nearly 15 per cent, while volatility has spiked too.

This, combined with a fall in imports due to high global coal prices led to supply disruptions across power plants.

Supply disruptions in turn resulted in power cuts lasting up to 14 hours a day in many cities despite record supplies from state-run Coal India, the world’s biggest coal miner.

The Crisil report further noted that massive rise in power demand in April-September went beyond control as it was not distributed equally among different sources.

While coal-based power generation jumped 19.1 per cent year-on-year, generation from other conventional sources saw 15.5 per cent decline.

Power generation from hydro, gas and nuclear sources — which makes up for 16-17 per cent of total power generation — also witnessed a steep decline.

State-wise stock levels

Coal stocks are at their most critical level in Bihar, Karnataka, Maharashtra and Rajasthan.

While 13 power plants have been shut down in Maharashtra due to coal shortage, several districts in Bihar have been facing power cuts of more than 4-8 hours a day for the last few weeks.

Further, Bengaluru saw massive outages on October 12-13. Rajasthan forced power cuts on rotational basis across the state with 1 hour outage in cities and 4-6 hours in rural areas.

In Uttar Pradesh, several villages received power for only 10 to 15 hours in a day.

Heavy industrialised states drive power demand

Demand growth was close to 20 per cent for highly industrialised states like Maharashtra, Tamil Nadu and Gujarat, together accounting for close to 30 per cent of overall power demand.

While demand growth from moderately industrialised states has been close to 15 per cent and states with more residential or agricultural consumers it has been under 10 per cent, the report said.

Pent-up demand has caused power demand to be 3 per cent higher than even pre-pandemic fiscal 2020, it added.

Power-intensive sectors at risk

With the ongoing festive season, Crisil expects 10 sectors in manufacturing space to account for nearly 55 per cent of total grid industrial power consumption.

Industrial demand comprises 30 per cent of total power consumption, specifically from grid-based power.

The report expects no major impact on production before the festive season. It says segments like cotton yarn and ceramic units are not likely to be impacted significantly because of the shortages.

How will shortage affect consumers?

The report noted that two sets of consumers may feel the impact of coal shortage — industrial and residential.

For industrial consumers, Crisil noted that those with captive power plants may bear the brunt of lower supplies of coal.

It may also lead to a rise in cost of certain products manufactured by them.

For residential consumers, any sudden rise in power tariffs may not result in immediate jump in costs, the report said.

When will situation improve?

The report says that coal stocks are unlikely to improve to the previous level of 15-18 days inventory anytime soon.

It estimates overall power demand growth to average at 7 per cent in the current fiscal.

Over the next three months, given the criticality of the current coal crisis average demand would be lower than in the past few months.

While this may offer temporary respite, the real monitorable for power availability will be March-May 2022, when temperatures soar.

Therefore, a build-up in coal inventories before end-February is crucial, the report said, adding the base demand is on the rise, so is volatility.

What does the govt plan to do?

Power secretary Alok Kumar has stressed on the need to have strategic reserves of natural gas and imported coal to address future supply shocks.

Citing the example of Russia, he said that countries increasingly meet their own needs first when there is a supply crunch. Russia curtailed supplies to European nations because they wanted more gas locally.

Coal accounts for over 70 per cent of India’s electricity generation.

India is the world’s second largest coal importer and has fourth largest reserves.

It is also competing for supplies with China, which too is under pressure to ramp up imports amid a severe power crunch.

NTPC seeks to import coal after 2 years

Power producer NTPC issued a tender seeking 1 million tons of overseas coal.

According to a report by news agency Bloomberg, documents posted on company’s website shows that the fuel will be mainly used at power plants of the company that are located far from domestic mines and are more vulnerable to disruptions.

A second tender, issued by NPTC on behalf of Damodar Valley Corp, also a state-run power producer, is seeking an additional 1 million tons.

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