Business & Investment

Asian coal shortage

Asian coal shortage

China is not the only Asian country facing an energy crisis. India is also on the verge of a power outage.

Most of India’s coal-fired power plants have very low coal inventories as the economy improves and boosts electricity demand. Coal accounts for about 70% of India’s electricity generation. According to Societe Generale Indian economist Knarkundu, the potential power crisis will be driven by industrial activity rather than services and will have an immediate impact on India’s early economic recovery. As of October 6, 80% of India’s 135 coal power plants have less than eight days of supply, according to government data. More than half have a reserve of less than 2 days.

According to Hetal Gandhi, head of research at rating agency CRISIL, a subsidiary of S & P Global, the average coal reserves held by power plants over the past four years have been about 18 days worth of supply.

State-owned Coal India, which accounts for more than 80% of India’s coal production, reportedly announced last month that it would increase its utility supply to address the coal shortages at its power plants.

How did you get here?

The current problem stems from a combination of supply factors and declining coal imports. From April to August, electricity demand surged in India.It arrived when the economy began to recover from the dire second wave COVID-19.. According to Gandhi, the economic recovery was faster than many expected. According to Gandhi, thermal power plants have low coal inventories and did not anticipate a surge in electricity demand this year.

Other power sources such as hydropower, gas and nuclear power are also declining. According to Gandhi, one of the factors was the unevenly distributed rainy season. Hydropower, or hydropower production, has been harmed in several places due to lack of rainfall.

Other issues include a dramatic rise in oil prices and a shutdown of nuclear power plants, she said. All of this has led to an increase in coal-fired power generation.

According to Wood Mackenzie’s chief analyst, Sandeep Kalia, Coal India has ample pithead supply, but the logistical challenges posed by the monsoon season have also hampered coal supply. During the rainy season, many routes tend to be flooded, making passage more difficult.

Why is the availability of coal declining?

Despite its significant coal reserves, India is the third largest coal importer in the world. However, the widening gap between international and domestic coal price spikes has led to a dramatic decline in imports in recent months.

Power plant coal imports plummeted 45 percent in July and August compared to the same period last year. According to Kalia, India’s non-electric industry has become more dependent on domestic coal. Non-electric industries such as aluminum, steel, cement and paper typically use large amounts of coal to generate heat. For example, as the world economy slowly recovers from a pandemic, transportation costs are rising. Due to increased demand for cargo and port congestion. India’s coal prices are primarily determined by the state-owned company Coal India. As a result, even if international prices rise due to electricity prices and inflation, domestic prices will not rise much. Utilities cannot pass on high costs to most consumers.

What could happen next?

Electricity demand could increase further as India’s Christmas season begins this month and consumption normally peaks. The situation could be exacerbated when global demand for Indian products increases significantly. Coal India is reported to have increased supply as part of this to make up for some of the shortfall. Given India’s reliance on thermal power, according to Societe Generale Kundu, domestic coal suppliers could divert their supply to thermal power plants rather than industries such as steel and cement. ..

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