About 20 gigawatts (GW) or 10% of the total 209GW capacity of coal-based thermal power generation companies (gencos) in India remains vulnerable to outage amid surging demand for coal, warns ratings agency CRISIL.
Despite the recent dip of around 10% in demand through 16 and 17 October 2021 due to heavy rains, shortage of coal persisted with the inventory at about five days for these power plants, the ratings agency points out.
According to CRISIL, over half of these capacities do not have fuel supply agreements (FSAs), increasing their reliance on coal through imports or e-auction where prices remain elevated.
The scarcity and higher coal prices may force these capacities to shut down for a few days as their operating cost could outweigh revenue, a CRISIL analysis indicates.
Ankit Hakhu, director of CRISIL Ratings, says, “We expect high global coal prices to make imports expensive and domestic e-auction premiums to remain elevated over the next few months, till supplies stabilise. In this milieu, about 20 GW private capacities out of 209 GW coal-based capacities will be the most vulnerable as these depend heavily on the open market or imports for coal, and most have committed tariffs for the power sold to utilities.
"Therefore, if these gencos continue operations at these elevated current coal prices, it may lead to operating losses and thus these capacities may prefer to shut down till coal prices cool.”
Even though domestic coal supply in the second quarter this fiscal is up 16% compared with the corresponding pre-pandemic period of fiscal 2020, part of it is to substitute non-coking coal imports, which have fallen more than 20%, resulting in overall coal supply growing at around 8% and, consequently, coal stock at the plants depleting (see chart below).
Further, CRISIL says, domestic supplies have been erratic due to seasonal rains impacting mining (see chart below).
Meanwhile, domestic e-auction premiums, over the notified price of auctions conducted by Coal India Ltd, have spiralled due to scarcity of coal to over 130% this September, from about 80% in September 2019.
Even global coal prices today are 160% higher than those in September 2019 due to growing international energy requirements (see chart below), constraints in production and increased natural gas prices skewing the energy mix.
According to the ratings agency, outages are unlikely at Central and state gencos accounting for 133 GW. “This is because most have FSAs for their entire requirement, which guarantee coal supplies at notified prices. These plants, which cater to over 60% of India’s thermal generation, may at worst see only some variation in coal supplies in the near term.”
The balance 56GW of the private gencos have more than half of their coal requirements tied up through FSAs and while that should help them navigate the scarcity, plant load factors (PLFs) would be lower.
For the record, as much as 80% of the coal produced in India is supplied to gencos, which generate 75% of the country’s electricity. Power demand grew around 9% during the second quarter of this fiscal year over the same period in the pre-pandemic fiscal 2020, driven by a rebound in economic activity and higher than usual temperatures in north and south India.
However, reliance on thermal sources increased disproportionately because of lower hydro and nuclear generation during the period, CRISIL points out.
According to Rohan Kulshrestha, associate director of CRISIL Ratings, thermal PLFs have expanded by about 400 basis points (bps) to 57% in the second quarter of this fiscal year from 53% in the corresponding quarter fiscal 2020. They are expected to remain high at about 60% for the full fiscal as against 56% in fiscal 2020.
“As a result, the pressure on coal demand will also remain high. While coal availability for plants having FSA will be just about adequate for their current generation, gencos are unlikely to be in a position to ramp up inventory, which is expected to remain in single-digit days,” he says.
To be sure, coal shortages have occurred in the past due to monsoon, lack of evacuation infrastructure and rake unavailability.
The ratings agency says that these have been partly addressed through higher imports, rationalisation of mines, ramp-up of production, creation and improvement of evacuation infrastructure, and liberalisation of commercial mining norms.