Friday, June 24, 2022

Explained: Why India’s power crisis might return another summer

Despite correct coal demand projections, sluggish growth in coal production, coupled with rise in global coal prices, has placed India’s power sector in a crisis

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  • India’s coal production has grown at CAGR of 1.71 percent over the last five years
  • An analysis of India’s power generation figures between 2009-10 and 2021-22 shows a CAGR of 4.81 percent

New Delhi: The Ministry of Power had projected an increase in demand for coal correctly, two sources aware of the matter of the matter told PSU Watch. However, despite correct projections in the requirement of the dry fuel, sluggish growth in coal production, coupled with an unprecedented rise in the international prices of coal, has placed India’s power sector in a crisis-like situation, the sources said. According to an official, for the month of April, the Ministry of Power had projected a demand of around 64 Million Tonnes (MT) of coal for the power sector and the actual coal consumption stood at 66 MT. “A deviation of 2 MT is acceptable. However, we are still in a crisis-like situation because the growth in coal production has been inordinately slow,” said one of the two officials quoted above.

India’s coal demand and availability

India has the world’s fifth largest coal reserves. About 90 percent of these reserves comprise of coal that can only be used by the power sector. Coal imports by the power sector have hovered between 69.22 MT (2019-20) on the higher side and 45 MT (2020-21) on the lower side in the last five years, data shared by Coal Minister Pralhad Joshi in the Lok Sabha on March 23 this year shows. The rest of the demand has been met through domestic production of coal, which has increased at a slow pace.

According to data shared by Joshi in the Lok Sabha, India recorded coal production of 657.868 MT in 2016-17 and 716.083 MT in 2020-21. The Compound Annual Growth Rate (CAGR) works out to be 1.71 percent.

An analysis of India’s power generation figures between 2009-10 and 2021-22 shows a CAGR of 4.81 percent. In a recent report released in January this year, the International Energy Agency (IEA) said that it expects India’s power demand to grow at 6.5 percent during 2022-24. This means that the growth in power demand will far outpace the growth in coal production if the latter continues to increase at the current rate.

India’s power crisis

According to another government official who spoke to PSU Watch, the Ministry of Power had projected coal requirement of 760 MT. It was later revised to 784.6 MT. The source said that the Ministry of Coal had committed to supplying 742 MT of coal, out of which 565 MT of coal for the power sector would come from Coal India Ltd (CIL), 120 MT would come from captive mines, while 57 MT would come from Singareni Collieries Company Ltd (SCCL). The rest of the requirement will have to be met through imports, the official said. “With major ratings agencies projecting international coal prices to remain above USD300/MT level, the crisis-like situation is likely to continue for India unless there is an increase in coal production in tandem with the increase in power demand,” said the source.

“The Ministry of Coal has been doing its best to increase the production of coal by the state-run companies and by the private sector. However, the growth in production must match the rise in power demand that we are witnessing year after year. Coal PSUs have been able to register a growth of 4 percent in coal production, which is not enough to meet India’s power demand without imports. We have power generation capacities in place. We have a robust transmission network to take it across the length and breadth of the country. But we don’t have enough coal,” said the official quoted above.

(PSU Watch– India’s Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)

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