Systemic failure

| Updated on February 12, 2018

The return of coal shortages points to systemic shortcomings in both demand and supply-side management

“By 2017 India need not import coal except for a few power plants on the coast...,” claimed the then Power Minister, Piyush Goyal, in November 2016, adding that the era of coal shortages in the country was over. Initially it appeared that his words, at least pertaining to ending shortages, would come true. After all, Coal India, which produces the bulk of the country’s fossil fuel, improved its productivity smartly and supply constraints eased significantly for power plants and other users. But this transformation turned out to be short-lived. A little over a year later, coal-based power plants in the country are almost out of stock of fuel. This is the second time a supply crisis has loomed — first in October 2017 and now in February 2018. According to Central Electricity Authority data, as of February 6, six plants had less than seven days of coal stock, while 14 others had even less — fewer than four days’ consumption.

It is difficult to put a finger on a single reason. Demand has clearly improved. Thermal power generation between April and December 2017 rose 4 per cent compared to the previous year. There are other signals as well. E-auction prices for coal have risen and the premium rose 76 per cent in Q3 FY18 as against 24 per cent in the same period last year. Coal imports have risen despite a 40 per cent jump in international coal prices. At the same time domestic supply has been flat (Coal India’s production in the April 2017-January 2018 period rose by just 1.6 per cent). Logistics issues —poor rail links from the mines, insufficient loading infrastructure and non-availability of rakes — continue to haunt. This possibly explains why all the 20 power plants that have critical coal stock levels are non-pithead plants. It also appears to be a case of inventory mismanagement by both Coal India and the power plants. Even as Coal India ramped up production, the Indian economy tanked and so did the demand for electricity. In 2016-17 the plant load factor of thermal power plants fell below 60 per cent — the lowest in a decade. Suddenly Coal India found itself a victim of its own efficiency. It ended fiscal 2016-17 with a closing stock of 68 million tonne. It began to cut back on production. For similar reasons, power plants, too, began to draw down their stock. But when the demand picked up suddenly, both were caught on the wrong foot. The first tell-tale sign was when spot prices in power exchanges spurted to as high as ₹9 per unit.

With 66 per cent of the country’s electricity generated from coal, such shortages tend to prove costly. While a lot has been said about improving productivity, infrastructure and the financial position of power utilities, the latest episode of shortage points to the need for a technology-driven system that enables both the producers and users of coal to predict demand swings better and react faster.

Published on February 12, 2018

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