The coal crisis looms as energy demand rises and record world prices bite into

Utilities are struggling to secure coal supplies as inventories hit critical lows following a surge in power demand from industries and slow imports as record world prices push plants. of energy on the edge of the abyss.

More than half of India’s 135 coal-fired power plants have fuel reserves of less than three days, government data shows, well below central guidelines recommending supplies of at least two weeks.

Supply crisis

Fuel prices for power generation are rising globally as demand for electricity recovers with industrial growth and reduced supplies of coal and liquefied natural gas.

India is competing with buyers like China, the world’s largest coal consumer, which is under pressure to increase imports amid a severe energy crisis.

Rising oil, gas, coal and energy prices are fueling inflationary pressures around the world and slowing the economic recovery from the Covid-19 pandemic.

See also: CIL steps up coal supply to power companies

“The supply crisis is expected to persist, with the non-energy sector facing the heat as imports remain the only option to meet demand, but at increasing costs,” Crisil said in a report this week, adding that expects Asian coal prices to continue. to increase.

“Coal inventory in thermal plants will improve only gradually by next March,” he added.

Fall in coal imports

Indian power producers who have long-term agreements with distribution companies cannot pass on higher input costs unless a pass-on clause is included in the contract.

Traders and utility company officials said that the purchase of imported coal by power plants has declined due to high prices.

India’s average weekly coal imports during August through the end of September, when world coal prices rose more than 40 percent to record highs, fell by more than 30 percent from the average for the first seven months of the month. year, according to data compiled by Kplr.

Total imports for the most recent week were less than 1.5 million tonnes, the lowest in at least two years. The websites of major coal importing state utilities showed no new tenders for new shipments this month.

Global prices vs CIL prices

Coal prices from major exporters have climbed record highs recently, with Australia’s Newcastle prices rising roughly 50 percent and Indonesian export prices 30 percent in the past three months.

Indonesia’s coal benchmark price for September was up to seven times higher than similar quality fuel sold by Coal India to Indian utilities, according to Reuters calculations.

See also: The commodities market is likely to be volatile until early next year

“Traders who bought coal from Coal India at spot auctions are gaining ground. They are sold at premiums of 50 to 100 percent, ”said a senior official in charge of coal sourcing at a large utility operator in India.

CIL said this week that higher global coal prices and freight rates have pushed utilities that rely on imported coal to reduce energy production, resulting in greater reliance on domestic coal plants. .

India is the world’s second largest coal importer despite having the fourth largest reserve. Utilities account for around three-quarters of its total consumption, and Coal India accounts for more than 80 percent of the country’s output.

Increased demand for industrial energy

Power plants are also dealing with growing demand from industries as economic activity recovers from the latest wave of Covid-19.

Energy consumption in industrialized states, including Maharashtra, Gujarat and Tamil Nadu, grew between 13.9% and 21% in the three months ending in September (Q2FY22), a Reuters analysis of POSOCO data showed.

The three states account for almost a third of India’s annual electricity consumption. Industries and offices represent half of the country’s annual electricity consumption. During the last two quarters of fiscal year 21, the residential and agricultural sectors were the main drivers of energy consumption after the first wave of Covid.

“This year, we have seen tremendous growth in industrial demand,” said Shahmeena Husain, Managing Director of Gujarat Urja Vikas Nigam.

While there have been no large-scale power outages in India, deficits have nearly quadrupled from negligible levels last year, data from POSOCO showed.

See also: Why is India facing a coal shortage?

So far, the shortage has been mostly confined to northern states such as Uttar Pradesh, Bihar and Kashmir, the data showed.

“Domestic consumption increased by about 10 percent in the past two years due to working from home and air conditioning,” a senior Tamil Nadu government official told Reuters.

“After the opening of industries after the second wave, industries are king,” he added.

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