Understanding The True Extent Of India’s Coal Deficit

India is facing an expanding crisis as coal stocks, the fuel needed to generate over 70% of its electricity, drop to their lowest levels in years, just as power demand is expected to rise.

According to government data from the power ministry, the disparity between available electrical supply and peak demand expanded to more than 4 gigawatts recently, indicating the emergence of power shortages.

While China’s coal shortages and electricity shortages have received the most attention, India is facing a potentially worsening situation.

As India enters its festival season later in October, industrial and home consumption typically peaks, potentially delaying the recovery in Asia’s third-largest economy, which has been rebounding from a great 7.3 percent contraction in the fiscal year ended in March.

Coal’s Economic Importance 

Coal’s value as a source of energy or fuel cannot be overstated. Any country’s economic development is mainly determined by its industrial progress and a country’s economic growth is heavily reliant on having an adequate supply of this most valuable mineral product.

Coal is considered the backbone of India’s electricity generation. In India, there is a high demand for electricity. For industrial and corporate setups, power is a necessity and the most critical aspect.

India’s coal situation has always been optimistic, India was the world’s third-largest coal-producing country in 2011.

India’s total coal reserves were estimated to be above 290 billion metric tonnes. Jharkhand, Odisha, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, Meghalaya, Telangana, West Bengal, Sikkim, Arunachal Pradesh, and Bihar have the majority of India’s coalfields.

At the turn of the twentieth century, India’s annual coal production was roughly 6 million tonnes. It then increased to 532 million metric tonnes by the year 2010-11.

Why Is There A Coal Shortage In India?

There are many plausible causes for India’s coal scarcity.

First, as the Indian economy recovers from the COVID-19 crisis, there has been an enormous surge in electricity demand. According to research, India utilized 124 billion units of electricity in August this year, up from 106 billion units the previous year.

Another reason for the coal scarcity is the rise in imported coal prices to an unusually high level, which has resulted in a significant reduction in power generation from imported coal-based power plants and the failure to accumulate appropriate coal reserves before the commencement of the Monsoon.

The frequent rains in coal mining locations in September are another cause. Experts say When compared to previous years, coal production and dispatch peaked in September and October. 

Is The Current Power Outage Concerning?

With the world’s fourth-largest coal reserves, India relies primarily on thermal power plants to meet its energy needs. 

It also imports coal from Australia, South Africa, and Indonesia, making it the world’s second-largest importer of fuel.

According to the Central Electricity Authority (CEA), by the end of September, more than half of India’s 135 coal-fired power plants, which provide over 70% of the country’s electricity, had only four days’ worth of coal on hand. 

This is concerning because India is in the midst of its festive season, resulting in a surge in demand.

What does the government have to say about it?

Although several state governments and power suppliers have warned of blackouts due to a lack of coal, the Union Coal Ministry has stated that India has adequate fuel stocks and that “low inventory does not mean generation will stop because the stock is being replenished on a continuous basis.” 

It further stated that the stockpiles reported by power facilities are rolling stock, implying that the stockpiles are refilled daily.

The Power Ministry’s Core Management Team (CMT) is actively monitoring and managing coal stocks daily, as well as guaranteeing follow-up steps with Coal India Limited and Railways to increase coal delivery to power plants as claimed by the Union Power Ministry.

Some Potential Future Moves And Constraints

Resurgence Of Mining Programs

Coal India Ltd., the world’s leading producer of the fuel, aims to expand daily coal supplies to 1.9 million tonnes by mid-October, up from approximately 1.7 million tonnes now. 

As reported by India’s coal secretary, Anil Kumar Jain, supplies to energy plants are continuing to fall short by 60,000 to 80,000 tonnes each day, 

Severe flooding has disrupted coal production in India’s eastern and central regions during the regular monsoon season, affecting mines and essential transportation links. 

Any recovery will be dependent on the weather, rain must stop for mines to reopen and coal trucks to resume delivery.

To alleviate shortages, the government announced on Tuesday that firms that have been allotted coal and lignite mines for their own use will be allowed to sell 50 percent of their annual output.

While coal reserves at power plants are dangerously low, it is doubtful that they would run out of fuel entirely. 

Government departments and businesses are closely monitoring supply levels, and supplies may be diverted away from industrial users like aluminium and cement producers in order to favour power generation. 

Those industries would be confronted with a choice: reduce output or pay exorbitant costs for imported coal.

Restrictions on the supply

Rationing home electricity supplies, particularly in rural and semi-urban regions, could be one of India’s simplest answers, though it would present Prime Minister Narendra Modi with additional issues.

When generation falls short of demand in India, power distributors usually limit supplies to particular areas on a cyclical basis. An extension of load-shedding would likely be considered if power plants take any more hits.

However, doing so would jeopardize the country’s fragile economic recovery, and Modi’s administration is already under fire for failing to create enough new jobs.

Incentive Valuations

With rising power rates, some coastal plants may be able to use high-cost imported coal, reducing some of the pressure on domestic miners.

Around three-quarters of the country’s electricity needs are met by domestically produced coal, with the remainder coming from Indonesia, South Africa, and Australia.

According to official data, spot rates of power traded through the Indian Energy Exchange Ltd. increased by more than 63 percent year on year in September, averaging 4.4 rupees ($0.06) per kilowatt-hour, and reaching as high as 13.95 rupees on Wednesday.

As a result, even if coal prices are at an all-time high, some plants may now want to purchase immediate seaborne coal cargoes. 

New rules are being prepared that will allow generation companies to sell excess electricity on the markets, in part to reactivate idled units. 

Two massive power facilities in Gujarat state, owned by Tata Power Co. and Adani Power Ltd., have been shut down due to difficulties such as high imported coal prices.

More Completed Dams

The monsoon rains that swamped coal mines are also expected to enhance hydropower generating.

After coal, large hydroelectric projects on dams are India’s primary source of electricity, and the industry peaks around the rainy season, which lasts from June to October.

During the six months ending Sept. 30, generation from the projects accounted for roughly 14% of India’s total, and that share could rise if the plants can function at higher utilization rates. 

Hydropower generation is currently above target, indicating that corporations are starting to ramp up output.

Pressing The Gas Pedal

Even though worldwide prices are already soaring, natural gas can have a more significant role to play. India has about 25 gigawatts of gas-based power capacity, but due to high fuel prices, nearly 80 percent of that capacity is idle.

According to Arun Kumar Singh, chairman of Bharat Petroleum Corp, India’s second-largest fuel retailer that also buys and sells LNG, imported LNG cargoes purchased on the soaring spot market aren’t a viable option for Indian power generators at current pricing.

However, in a pinch, the gas-powered fleet may save the day and avert widespread power disruptions. 

NTPC Ltd., for example, is a state-run generator with idle capacity that can be cranked up in roughly 30 minutes if needed and is connected to a gas grid.

Making Diesel Expensive

Due to environmental controls and excessively high pricing, any shift to oil products such as fuel oil and diesel could well be limited. 

Because there are currently no large oil-fired plants directly connected to the grid, large-scale gas-to-fuel swaps are improbable.

In the event of a power outage, certain commercial institutions, such as hospitals and malls, as well as small businesses, use diesel-powered generators. 

However, record-high diesel prices will prohibit its widespread adoption.