India is grappling with a growing crisis as reserves of coal, the fuel used to generate about 70% of the country’s electricity, decline to the lowest level in years just as demand for power is set to rise.
Coal-fired power plants have an average fuel storage of four days, according to the most recent data, and more than half of the plants are already on alert for outages. Energy Minister Raj Kumar Singh has warned that the nation could be managing a supply contraction for up to six months.
Power outages are already emerging, and the gap between available electricity supply and peak demand widened to more than 4 gigawatts on Monday, according to government data from the Energy Ministry.
While China’s coal shortage and that nation’s energy crisis have attracted most of the attention, it is India that faces a scenario that could worsen.
Industrial and domestic consumption generally hit highs as India enters a festival season in late October and that could stall a rebound in Asia’s third-largest economy, which has been rebounding from an unprecedented 7.3% contraction in the fiscal year ending in March.
Here are some possible next steps and constraints in the Indian crisis:
State-owned Coal India Ltd., the world’s leading fuel producer, is trying to increase daily coal supply to 1.9 million tonnes in mid-October from around 1.7 million tonnes currently, an increase that would help in greatly alleviate the problem. deficit. Currently, deliveries to power plants are reduced by between 60,000 and 80,000 tonnes per day, according to Anil Kumar Jain, India’s coal secretary.
Coal production has been affected by severe flooding in the eastern and central states of India during the typical monsoon season, with mines and key logistics routes affected. Any recovery will depend on the weather: the rains must stop to allow mines to speed up operations and coal trucks to resume deliveries.
On Tuesday, the government said it will allow companies that have been assigned coal and lignite mines for their own use to sell 50% of their annual output in a bid to alleviate the shortage.
While coal reserves in power plants are dangerously low, operations are unlikely to run out of fuel entirely. Government ministries and industry are working to closely monitor stocks, and could re-divert supplies from industrial users, such as aluminum and cement manufacturers, to prioritize power generation. That would leave those industries faced with their own dilemma: slow down production or pay high prices for imported coal.
Rationing domestic electricity supplies, especially in rural and semi-urban areas, may emerge as one of India’s easiest solutions, although it would pose other challenges for Prime Minister Narendra Modi.
Indian power distributors typically cut off supply to certain areas on a rotational basis when generation is less than demand, and an extension of the load reduction is likely to be considered if power plants take more hits.
However, doing so could jeopardize the country’s fragile economic recovery, and Modi’s government is already facing criticism for not creating enough new jobs.
High energy prices could potentially make it viable for some coastal plants to use high-cost imported coal, easing some of the burden on domestic miners.
The country satisfies about three-quarters of the energy demand with locally produced coal, with much of the rest imported from countries such as Indonesia, South Africa and Australia.
Spot prices for power sold through the Indian Energy Exchange Ltd. rose more than 63% year-on-year in September to an average of Rs 4.4 ($ 0.06) per kilowatt hour and hit Rs 13.95 on Wednesday. , according to official data. That means some plants are likely now looking to grab fast shipments of coal shipped by sea, even with product prices at a record high.
New guidelines are being drafted to allow generation companies to sell surplus electricity on exchanges, in part to push idle plants back into action. Two giant plants in the state of Gujarat, owned by Tata Power Co. and Adani Power Ltd., are among those that have been suspended as a result of problems including high prices for imported coal.
The same monsoon rains that have flooded the coal mines are likely to boost hydroelectric power generation.
Large hydroelectric dam projects are India’s main source of electricity after coal and the sector performs at its peak around the rainy season, which generally runs from June to October.
Generation from the projects accounted for about 14% of India’s total during the six months to September 30, and that share could increase if plants can operate at higher utilization rates. Recent data shows that hydroelectric power generation is above target, a sign that companies are starting to increase production.
Turn to gas
There could be a bigger role for natural gas, even with global prices on the rise. India has nearly 25 gigawatts of gas-fired generation capacity, although nearly 80% of that capacity remains unused due to high fuel prices.
At current prices, imported LNG shipments bought on the growing spot market are not a solution for Indian power generators, according to Arun Kumar Singh, president of Bharat Petroleum Corp, India’s second-largest fuel retailer that also buys and sells LNG.
However, in a desperate situation, the gas fleet could help prevent widespread power outages. State generator NTPC Ltd., for example, has idle capacity that could be turned on in around 30 minutes if needed and is connected to a gas network.
Any switch to petroleum products like fuel oil and diesel could be limited due to restrictions on pollution and prohibitively high prices. As it stands, the lack of large oil plants directly connected to the grid means that large-scale gas-for-fuel exchanges are unlikely.
Some commercial establishments, including hospitals and shopping centers, as well as small industries, use diesel-based generators to ensure an uninterrupted power supply in the event of outages. But record diesel prices in the country will impede its widespread use.
© 2021 Bloomberg