Despite last year’s assertion by the government that the era of coal shortage is over, most power plants are currently facing shortages.
Systemic shortcomings in both demand and supply-side management are hence apparent, which needs to be addressed.
What is the current scenario in the sector?
The union power minister stated in 2017 that except for a few power plants along the coast, India didn’t have to import coal for the foreseeable future.
It was thought that shortages will no longer creep up as ‘Coal India Limited’ (CIL), which produced the bulk of coal within India, stepped up production.
But this transformation turned out to be short-lived, with many coal-based power plants in the country going almost out of stock recently.
Enhanced Demand - While it is difficult to point to a single reason, enhanced demand for coal is regarded as one of the primary reasons.
Thermal power production increased by more than 4% in the last 2 quarters and coal imports have risen despite a 40% jump in international prices.
Also, e-auction prices for coal have risen and the premium rose 76% in Q3 of FY18 as against 24% in the same period last year.
What are the other specifics?
Logistics - Poor rail links from the mines, insufficient loading infrastructure and non-availability of rakes, are other aspects that continue to persist.
Notably, all the 20 power plants that have critical coal stock levels are non-pithead plants (away from mining zones).
This is hence also a classical case of inventory mismanagement by both Coal India and the power plants.
Market Fluctuations - Domestic supply from CIL did rise initially, it then moderated to a mere 1.6% average rise in the last 6 months of 2017.
This was because, while CIL was increasing production, the Indian economy plummeted and hence there was a slower increase in demand for electricity.
Significantly, in 2016-17 the plant load factor of thermal power plants fell below 60% (lowest in a decade), which consequently, saw coal stocks piling up.
As CIL closed FY16-17 with a massive 68 million tonnes of stock, it began to cut back on production to clear older stocks.
But when the demand picked up suddenly in recent months, it wasn’t able to ramp up supply at the expected rate.
What needs to be done?
As 66% of the country’s electricity generated from coal, shortages tend to prove costly, for the industry, economy and public at large.
The need for improving productivity, infrastructure and the financial position of power utilities is a long standing one and needs to be improved.
The latest episode of shortage points to the need for a technology-driven system that enables better prediction of demand swings.
This would help both coal producers and consumers to react faster and recalibrate their actions appropriately.
