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India’s coal crisis worsens as electricity demand rises, record global prices push power plants

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India is the world’s second largest importer of coal

Power utilities are scrambling to secure coal supplies as inventory plunged significantly due to sluggish imports due to increased power demand from industries and record global prices, pushing power plants to the brink.

More than half of the country’s 135 coal-fired power plants have fuel reserves of less than three days, government data shows, far short of guidelines recommending at least two weeks’ supply.

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photo credit: Reuters

Electricity generation fuel prices are rising globally as demand for electricity re-emerges with industrial development, dwindling supplies of coal and liquefied natural gas.

India is competing against buyers such as China, the world’s biggest coal consumer, which is under pressure to increase imports amid severe power shortages.

Rising prices of oil, gas, coal and electricity are adding to inflationary pressures around the world and slowing economic recovery from the COVID-19 pandemic.

“Supply crunch is expected to continue, with non-power sector facing heat as imports are the only option to meet demand, but rising costs,” rating agency S&P arm Crisil said in a report this week. Feather.” Prices to continue to rise.

“Inventory of coal in (Indian) thermal plants will improve gradually by next March.”

Power producers locked in long-term agreements with distribution utilities cannot pass on high input costs unless a clause is written in the contract to pass on such expenses.

Traders and officials of utilities said procurement of power plants dependent on imported coal was muted due to high prices. The websites of major coal-importing state utilities did not show any new tenders this month seeking new cargo.

Coal prices from major exporters have hit recent all-time highs, with Australia’s Newcastle up nearly 50 percent and Indonesian export prices up 30 percent over the past three months.

The September Indonesia coal price was seven times higher than the benchmark Coal India sold similar quality fuels to Indian utilities, according to Reuters calculations.

“The traders who bought coal from Coal India in the spot auction are making a killing. They are selling at 50-100 per cent premium,” said a senior official in charge of sourcing coal at a large Indian utility operator.

State-run Coal India said this week that higher global coal prices and freight rates have pushed utilities dependent on imported coal to reduce power generation, resulting in increased reliance on domestic coal-fired plants. .

Despite having the fourth largest reserves, India is the second largest importer of coal in the world. Utilities make up about three-fourths of its total consumption, with Coal India accounting for over 80 per cent of the country’s output.

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photo credit: Reuters

Industrial electricity demand boom

The country’s power plants are also grappling with rising demand from industries as economic activity has been overturned by the latest wave of the COVID-19 pandemic.

Electricity consumption in industrialized states, including Maharashtra, Gujarat and Tamil Nadu, rose between 13.9 percent and 21 percent in the three months ended September, a Reuters analysis of data from federal grid regulator POSOCO showed.

The three states account for about a third of India’s annual electricity consumption. Industry and offices account for half of the country’s annual electricity consumption.

During the last two quarters of the financial year ending March 2021, the residential and agriculture sectors were the major drivers of electricity consumption after the first wave of the coronavirus.

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photo credit: Reuters

“This year we have seen tremendous growth in industrial demand,” Shahmina Hussain, managing director of Gujarat’s electricity regulator, told Reuters.

Data from POSOCO shows that although India has not experienced massive power cuts, the deficit has increased almost four times from the negligible level recorded last year.

The data shows that the shortfall has so far been mostly confined to the northern states such as Uttar Pradesh, Bihar and Kashmir.

A senior Tamil Nadu government official told Reuters: “Work from home and air conditioning have led to a nearly 10 percent increase in household consumption over the past two years.”

“With industries opening up after the second wave, industries are king,” said the official.

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