Looming coal shortage set to unplug power plants

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A surge in electricity demand growth and poor coal production by Coal India threaten to accentuate the fuel crisis.

At a time when coal prices are on fire in the overseas market and imported fuel-based gencos are idling, Coal India’s production, which normally peaks in the winter, has set alarm bells jangling.

The coal production situation might snowball into a crisis, said an analyst on condition of anonymity.

An unexpected rise in demand for thermal power triggered a fuel crisis in July 2017. Owing to lack of data, it was initially attributed to a fall in hydel supplies and stronger growth in demand on the back of the rural electrification push.

The demand surge caught CIL off-guard: the company was in the process of cutting down production due to sluggish demand for almost two years. Excessive production over the previous two years, when demand was flat, had led to a a multi-year-high pit-head stock of 68 million tonne (mt).

After an initial jolt, CIL deployed its pit-head stock to cater to the demand, using the improved railway logistics.

Supplies started easing out, and as in end-December, the average daily stock at power plants was up from five days to nine days and, the number of plants with critical fuel stock was down from 29 to just 12 in five months. Supplies to the non-power sector — steel, cement — were up, though they were lower than last year.

Both CIL’s acting Chairman Gopal Singh and Coal Minister Piyush Goyal maintained that they were on overdrive to step up production in the winter months — when mining activity peaks — to take annual output to 600 million tonne.

But the plan backfired. Coal production grew 2.6 per cent, 0.7 per cent and 1.3 per cent in November, December and January, respectively, taking the 10-month average to 1.6 per cent. Two subsidiaries, CCL and BCCL, reported 11-13 per cent decline in production.

At the current monthly average of 53 mt, annual production may only touch 550 mt. With pitheads stocks bottoming out to 33 mt, CIL cannot push off-take further without matching production growth.

Meanwhile, electricity demand grew 5.8 per cent in July, up from 2.6 per cent in FY17 and 4.3 per cent in FY16, with UP, MP, Maharashtra, Telengana and Gujarat being major buyers.

The result is showing in low fuel stock at power plants. As on February 1, the average inventory at 21 plants was nine days’ equivalent.

Source: THE HINDU BUSINESSLINE