Coal shortage may impact power generation even as demand rises

The peak power demand is set to rise with increase in average temperatures but coal supply is likely to be hit because of a shortage in production by top suppliers. Peak demand for power rose 15% to 157,000 MW in February over the year-ago period and would trend higher in the coming months.

With the government likely to push for 24×7 supply in the pre-election year, meeting demand shortage is likely to continue. According to the Central Electricity Authority data, the total coal stock at power plants was down 44% to 15,325 metric tonne last week.

Industry experts believe the situation will worsen if the right steps on coal allocation are not taken immediately. According to the data, there are 11 plants with critical stocks of less than seven days, while 14 plants have a super-critical stock of less than 4 days. On an average, the companies are supposed to have a critical stock of 21 days. Adequate inventory is key to maintaining power generation at present levels at the thermal power plants.

The present coal shortage comes at a time when demand from factories is on the rise, as industrial activity recovers after the impact of demonetisation and the implementation of Goods and Services Tax (GST). Coal India has already reduced its targeted production for FY18 from 660 MT to 600 MT on account of flagging demand due to rise in production from renewables. However, in FY18 up to February, the production was only about 495.1 MT or 93% of the targeted production. The dispatch to power sector was 413 MT during the period.

According to the coal ministry data, of total 372 million tonne (MT), Coal India (CIL) supplied 272.42 MT (accounting for 73.5%) to public sector thermal power plants from April 2017 to January 2018.

On the other hand, private thermal power plants received 85.58 MT during these ten months, which accounts for 26.5% of total coal supplied to thermal power plants.

The supply of thermal grade coal (G-11 & G-12) is likely to remain in the same proportion in coming years. Moreover, the recent coal price hike will translate to an increase of 12-15 paisa/Kwh. It should be noted that PPAs (power purchase agreements) do not allow for passing on any increase in coal price to consumers, while public power plants enjoy this benefit. A senior power company official said on condition of anonymity that coal shortages can be improved if government makes it mandatory for power companies to have a minimum inventory of at least two weeks of coal at all times, which will save companies from critical reserve situations.

“Power companies should also be allowed to own or lease and run their own private rakes, besides allowing them to move coal by road, at least in the monsoon months, which is prohibited on environmental grounds. During the rainy season it should be less of a hazard,” the official said.

However, Girish Kumar Kadam, vice-president and sector head (corporate) at Icra, is hopeful that coal availability could improve in coming months as non-coal cargo offtake will go down. Also, IPPs can look at imported coal on cost-plus basis under a well laid out plan for offtake of the power. E-auctions will also help companies as government will call for fresh auctions for coal linkages.

Source: FINANCIAL EXPRESS