Coal accounts for 55 per cent of India’s primary energy needs.
Four-fifth of the domestic production comes from Coal India Limited.
In the pre-covid year, CIL accounted for 61 per cent of the total coal consumption in India.
The world energy market is witnessing arguably the most turbulent phase. At a time when the economic buoyancy is driving up the fuel demand, with the pandemic softening, the Russia-Ukraine conflict is upending the international energy markets. Both availability and price volatility are a concern. Every country, big or small, is affected by it.
On a global scale, India has done relatively well so far in managing the crisis. The credit largely goes to the state-owned Coal India Limited (CIL) which supplied domestic fuel at an unprecedented pace, particularly over the last six months.
Coal accounts for 55 per cent of India’s primary energy needs. Four-fifth of the domestic production comes from CIL. In the pre-covid year, the company accounted for 61 per cent of the total coal consumption in India. The contribution increased significantly in the high GDP growth year of 2021-22.
Year-on-Year, CIL supplied 15 per cent more fuel. Compared to the previous best year of 2018-19, the supplies were nine per cent higher. This is a tall order achievement both for the mining as well as the logistics (Indian Railways) sectors globally.
Noteworthy that the supplies were ramped up in the face of a sudden spike in electricity demand, (for which the power sector was barely ready) beginning August-September 2021. Moreover, it coincided a sharp 23 per cent year-on-year decline (April-January FY22) in thermal coal imports due to price and availability concerns.
Coal power generation had shot up by 9.5 per cent till January, as against degrowth in the previous two consecutive years. Lacklustre performance of hydro (generation declined marginally during April-Feb FY22) added extra pressure on coal.
Yet, the peak deficit in electricity demand was restricted to 1.2 per cent in the high growth year. Between 2015 and 2017, when the economy was growing at 7-8 per cent (World Bank), India reported 1.6 to 3.2 per cent peak electricity deficit.
China saw power rationing
A quick comparison with China, often regarded for planning and execution, may help understand the significance of CIL’s performance.
During September- November last year, when India was celebrating festivals with much fanfare, China was reeling under power cuts as plants had run out of fuel.
Approximately 90 per cent of the coal consumed in China comes from domestic sources. According to a report quoting local financial daily Caijing, mining volumes were down by 17 per cent in some mineral rich northern provinces in the third quarter of 2021. The result was catastrophic.
“In China’s north, sudden power outages have led to flickering traffic lights and immense car jams. Some cities have said they are shutting off elevators to conserve energy,” reported NPR on 1 October. On 29 September, Nikkei Asia flagged “blackouts in Beijing and Shanghai.”
China’s industrial South was severely affected. Many factories were without electricity for more than a week. The fortunate ones got three to seven days of power supply at a stretch. Energy-intensive sectors – like textiles and plastics – faced the strictest power rationing.
In the end, the all-powerful single-party ruled China did stabilise the ship. Coal was imported from all around the globe, ignoring costs. Push was given on production too. According to International Energy Agency (IEA), domestic production reached 3,685 MT in 2021, the same as in 2020 (3,690 MT).
China was not alone. Coal exporting Indonesia (the biggest import destination for India) reported a three per cent production growth in 2021. Jakarta suspended exports for a few weeks in January 2022 to ensure that the power plants were fully stocked.
In comparison, India, with all its known political complexities and compulsions, reported (IEA) 3.7 per cent annual production growth – the same as coal-exporter Australia – in 2021.
CIL clocked 4.6 per cent year-on-year production growth in 2021-22. If compared against the previous best year of 2018-19, growth was 2.6 per cent. Supplies grew way faster, courtesy the huge pit-head stock that the company maintained free of cost to the coal consumer.
Power plants are the biggest beneficiaries. In a year when electricity generating companies in China were under financial stress due to the shooting price of domestic fuel vis-à-vis cap on electricity tariff; Indian gencos enjoyed 22 per cent higher supply, at a flat and discounted (compared to non-power consumers) rate.
The government directed most of the entire incremental fuel supply in the second half to the electricity generation sector, causing some heartburn to the non-power consumers. But the priority to power sector, the price of whose produce is regulated, was understandable. Imported coal-based generation was down to less than half till January.
Unlike in China, the Indian economy didn’t face rampant power cuts and grew at the fastest rate (World Bank estimate 8.3 per cent) in the world.
Adequate fuel for summer
Simple arithmetic tells that India should not face aggregate coal shortage for power generation in the peak summer months of April-June 2022.
Including year-end coal stocks with CIL, power plants and the coal in transit, India has a pipeline of approximately 90 MT, which is equivalent to roughly two months of generation needs. Not to mention that CIL is stepping up on gas production, and solar generation is rising.
But that doesn’t mean everything is hunky-dory. Monsoon months are crucial as solar supplies will fall. Assuming power demand will grow in double digits if hydel supplies remain as subdued as last season, there may be added pressure on coal. Concentrated rainfall in the mining districts, similar to last year, can affect production and supply.
Seasonal uncertainties had always been part of the game. The global uncertainty and tightness in the world coal market added to the complexity. To mitigate any potential shortfall, the government ordered imports for blending in domestic coal-based units. Imported coal-based plants were also asked to meet supply obligations.
Considering global coal prices are zooming, there will be some price impact on electricity. However, due to the low share (roughly 10 per cent) of imported coal in generation, the impact will be limited on a national scale.
Coal India is also asking for a price rise to mitigate the inflationary impact. Historically, every round of coal price hike, increased the average generation cost by 5-6 paise a kilowatt-hour.
Such impacts are unavoidable in a global flux. Who could predict there would be a Ukraine crisis after the pandemic? It is now mandatory to avoid a power crisis and remove the hurdles to the domestic supply of fuel to minimize the impact of global developments on India’s growth potential.