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The coal crisis story is taking a curious turn. For nearly nine months, Coal India has been trying to avert a crisis arising from power plants’ fuel demand. Coal supplies have grown significantly, but the fuel stock position in power plants is becoming more critical.
It now appears that the coal crisis is not linked to any visible rise in the demand profile. According to the Central Electricity Authority (CEA), total electricity generation grew by 4.02 per cent in 2017-18 against 4.70 per cent in 2015-16. Even thermal generation grew at a slower pace of 4.27 per cent last year (against 5.34 per cent a year earlier).
Summer woes
As of March this year, electricity generation grew by only 3.07 per cent, against 5.46 per cent during the same period last year. The growth in thermal generation remained flat at 5.25 per cent (against 5.15 per cent).
Yet, as on May 2, power plants had, on average, only 10 days’ coal stocks. Thirty-one plants had less than seven days’ stocks, and 19 of them had less than four days’ stocks. On the same day last year, just one plant had critical supplies; in fact, the fuel stock position this May is worse than it was in April and March.
This is despite the fact that offtake (sales) grew 13 per cent and production grew 17 per cent in April this year when compared to last year. The figures are not comparable as coal demand hit a slow track during the same period last year, and production was restricted.
Yet, there is little doubt that supplies are increasing at steady pace. In April, CIL supplied nearly 51 million tonne of fuel, which is significant, but clearly not enough to meet the demand.
CIL sources believe that the demand for thermal power increased significantly due to less-than-estimated supply from other sources. The claim could not be verified as the CEA is yet to declare monthly data for April. But hydro supplies were down by 11 per cent in March 2018, and it is possible that the hydro shortfall has intensified with the onset of summer.
Artificial demand?
CIL sources claim that demand intensified from the State government-run generation sector. As of March 2018, the plant load factor (PLF) of the thermal sector increased to 65 per cent from 63 per cent, solely riding on State sector, where plant availability increased close to 69 per cent from 56 per cent.
In comparison, the PLF of the central sector was flat at around 78 per cent, and the private sector reported a decline in PLF to 52 per cent from 58 per cent.
The State sector is considered the least efficient, with high proportion of old plants and fewer super-critical facilities. On the other hand, the private sector is dominated by highly efficient super-critical plants that can generate electricity at least variable cost.
According to former CIL chairman Sutirtha Bhattacharya State sector plants, being old, require 15 per cent more fuel to generate the same amount of energy. The high-specific consumption is creating an artificial demand for coal.
Bhattacharya, who was Power Secretary of Andhra Pradesh and is now an advisor to the West Bengal government, feels that overcapacity, lack of long-term agreements and the banks’ preoccupation with non-performing assets have finally taken a toll on the finances of private generators. He thinks State-owned generators are filling this gap.
What’s cooking?
But what prompted the States to generate high-cost electricity instead of buying cheaper power from the IPPs?
With elections round the corner, every State government is keen to take extra care of its electricity subscribers, especially the wider base of rural consumers. But rural electricity distribution is a loss-making exercise due to the wide gap between realisation and cost.
Going by the past trends, States typically avoid buying electricity from either the Centre or from private sources under such circumstances.
Instead, they manage the gap by depriving payment to their own generation arms. The latter, in turn, defaulted payments to coal companies and borrowed heavily from banks.
It might just turn out to be a long and hot summer ahead.
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