Power crisis looms in India as coal stocks reach critical point

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India is the latest country to face a serious energy crisis that threatens to undermine its recovery from the pandemic, with authorities warning power plants are dangerously running out of coal.

According to India’s Energy Ministry, the 135 thermal power plants in Asia’s third-largest economy had on average only four days of coal stocks on Friday, compared to 13 days of supply in early August. Among the factories monitored daily, more than half have less than three days of inventory.

Power shortages have already started to hit the economy of neighboring China, where the manufacturing sector last month suffered its first contraction since the start of the pandemic. Beijing has ordered state-owned energy companies to secure fossil fuel supplies at all costs to avoid winter shortages, helping to push up prices for other major importers, including India.

“The [Indian] the electricity sector is facing a kind of perfect storm, ”said Aurodeep Nandi, Indian economist at Nomura Financial Advisory and Securities. “You are caught in a situation where demand is high, your supply is low on the national side and you have not replenished stocks by importing. “

India’s power producers have reduced their coal imports in recent months, as international prices have skyrocketed due to robust global demand from both Europe and China. Prime Minister Narendra Modi’s government has also promoted an Indian economic self-sufficiency policy as a guiding principle for its recovery from the pandemic.

Yet India’s cheaper domestic coal supplies – nearly 80 percent of which comes from the massive and inefficient state-owned company Coal India Ltd – have failed to keep pace with rising domestic demand.

The Energy Ministry said over the weekend that heavy September rains in mining areas affected both coal production and delivery, while the power plants themselves had failed to build their own. stocks before the monsoon season. He asked power companies to build up stocks, hoping that demand levels would likely stay “at current levels.”

The shortage now raises the prospect of impending and large-scale power cuts, rising consumer electricity prices or a negative impact on the financial results of power producers, in an economy where Coal-fired power plants now account for around 66% of electricity production, up from around 62% in 2019.

“Basically, we focused so much on recovering demand after the pandemic – which has been so central – that all of these supply-side issues weren’t in the limelight until they were in the spotlight. ‘they’re starting to bite,’ Nandi said.

India’s electricity consumption in August and September rose sharply to 124.2 billion units, from 106 billion units in the same two months in 2019, as a sharp drop in cases of Covid- 19 – and strong advances in vaccination rates – have encouraged many Indians to return to normal activities. .

However, coal from Indonesia, one of India’s main suppliers, fell from $ 60 / tonne in March to $ 200 / tonne in September, discouraging imports.

As India has long aspired to reduce its heavy reliance on imported coal, which has been a major contributor to its trade deficit, Nandi said New Delhi urgently needed to help Coal India to increase its production or that electricity producers should increase their imports, whatever the price.

“If the government does not increase production or if imports do not increase, there will be power cuts,” he said.