Commodities

India will avert any power crunch for now, says Fitch Solutions

Subramani Ra Mancombu Chennai | Updated on October 11, 2021

Coal shortage unlikely to impact economy as much as in China

India will avert any immediate power crunch situation as the government would ensure sufficient coal supplies at power plants ahead of Diwali, according to Fitch Solutions Country Risk and Industry Research (FSCRIF).

“While high demand for power, as the country continues on its Covid recovery coupled with supply shortages, has pushed India close to a severe power crunch, we believe the situation can still be handled by authorities and is significantly less acute than the power shortage being faced in China and Europe currently,” Fitch Solutions said in commentary on India’s power crunch.

Most of the country’s power is generated from coal, with State-owned Coal India meeting 80-85 per cent of the coal needs, while the rest are met through imports. “The recent spike in coal prices have made it uneconomical for power plants to import coal since June 2021, resulting in their reliance on domestic mines for coal instead,” FSCRIR said.

Weather, transportation woes

With Coal India setting the nation’s coal prices and keeping prices steady since 2020 despite international prices soaring, it remained in power plants’ interests to resort to domestic coal supplies, the agency said.

“However, heavy rain and flooding have led to a halt in coal mining domestically, along with transportation problems, creating a supply issue. Compared to the government’s recommendation to stock at least two weeks of coal supplies at power plants, 107 out of 135 power plants only had 8 days or less (most had 3-4 days) of coal left as of October 5, hinting at an imminent power crunch,” the rating agency said.

The comments come on the heels of various views being put forth on the availability of coal for power production in the country. Responding to a tweet by Delhi Chief Minister Arvind Kejriwal that the national capital region could face power crunch in view of the coal shortage, the Coal Ministry, on Sunday, said it had ample stocks to tide over any crisis.

While government-owned Coal India had 40 million tonnes (mt) stocks to replenish utilities, it also had 7.2 mt of inventories that can meet the country’s requirement for four days.

‘Slowly coming under control’

On Monday, the Power Ministry said 1.92 mt of coal had been despatched against total consumption of 1.87 mt, indicating that the situation was slowly coming under control.

Fitch Solutions said: “We note that India has faced this level of coal crunch previously and will be able to avert this crisis once again. India’s power crunch should ease once weather issues resolve, and it is temporary and unlikely to impact the country’s economy in the same degree as the power crunch in China.”

FSCRIR pointed out that the Centre had ordered captive mines to release 50 per cent of their stocks to power plants, ensuring additional supplies for power utilities. In addition, Coal India will boost supplies for power plants by cutting back on deliveries for companies that use in-house generators, such as metal and cement-makers, buying time until weather issues resolve.

Coal India has also announced that it will increase daily coal supply ahead of Diwali to 1.9 mt from 1.7 mt currently by the middle of this month, weather permitting.

Private sector participation

Increasing imports, especially from Australia is also another option, although this will add to financial difficulties faced by power distribution companies who cannot pass on cost of inputs to consumers, Fitch Solutions said. India is the third largest import of coal in the world.

Also, as winter approaches, demand from households for electricity is expected to fall, as air-conditioner or fan usage will stop. “Unlike Europe and China, India’s power consumption does not rise in winter as the country mostly utilises traditional means of heating that do not require electricity,” the agency said.

Fitch Solutions said India, which holds the fifth largest coal reserves in the world, should draw a lesson from the coal shortage to speed-up the opening of the sector to private players. Commercial mining of coal by private players along with Coal India will ensure India’s country’s energy security and reduce the need for imports, it said.

Published on October 11, 2021

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