Indian Power Companies Face Worst Ever Coal Shortage

India has traditionally struggled to produce enough coal to meet demand. However, the crisis of coal has never been this bad. According to reports coming in from the thermal power plants in India, coal stocks are critically low. This is all the more worrying since more than 70% of the total power produced in India is coal-fired thermal power.

Let us look at the magnitude of this coal shortage. Out of the 135 coal-fired power plants in India, around 16 plants had zero coal stocks and were running on a coal-in coal-out basis. But the overall condition is worse. Around 70 of these plants had coal stocks that would last for just about 3 days and 105 plants did not have coal for more than 10 days.

The Central Electricity Authority has prescribed 21 days coal as the ideal inventory but that is not the case with nearly 90% of the power plants. In the past, Indian power companies would import coal from countries like Australia and Indonesia. However, global coal prices have spiked in the last few months, forcing Indian power companies to rely on local coal.

India’s largest coal producer, Coal India, accounts for 82% of the local coal produced and it is almost operating at full capacity. Any further ramp-up will take time. In the current year, the unseasonal and erratic rainfall has badly impacted coal production and worsened the coal shortage in India. Indian coal prices are artificially low due to its inflationary potential.

Check - Power Crisis a Huge Problem for the Global Economy

The problem is also global, to an extent. The revival from the pandemic has led to a global surge in power demand. From UK to EU to China, there is an acute power shortage. Like India, China also relies extensively on thermal power, and its surge in demand for coal is pushing up prices in the global market.

In India, the low power prices have created a vicious cycle. Due to the low power prices, the state boards are forced to subsidize and power producers are bound by long term PPAs. The payment crisis gets transmitted from state electricity boards to power producers and onwards to the coal mines. It is this vicious cycle that needs to be broken.