*Area of darkness – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/area-of-darkness/article65333429.ece

Low coal stocks with power plants point to systemic supply constraints, amidst rising demand

India is back to the situation in October 2021 — of abysmal coal stocks in over half of the 173 thermal plants, even as a long summer lies ahead. There are just eight days of coal stocks in thermal power stations in 12 States, even as domestic demand, according to industry observers, touched a near-four decade high in the first two weeks of April. Temperatures this March and April are at decadal highs, giving rise to a coal demand-supply gap of at least 10 per cent. Outages have already begun in many States, even as coal supplies to non-power sectors have been cut. Power utilities account for about 70 per cent of coal demand, while iron and steel accounts for another 15 per cent. A cutback of coal to industry could hurt steel, cement and aluminium production, with serious repercussions for the economy. Coal supplies must be increased without further delay by addressing bottlenecks. Coal India Ltd (CIL) has been a laggard in increasing output from its mines in the last several years. During 2015, the Centre had ambitious plans of doubling CIL’s output to a billion tonnes by 2019-20. Seven years hence, in FY22 CIL’s output has inched its way up to just 626 million tonnes — that’s a compounded annual growth of a piffling 3.44 per cent compared to the target of about 15 per cent. Clearly, there are issues for the Centre to sort out here. Coal output has clearly not kept pace with the rising energy demand in the country.

The supply shortfall has been made worse by the non-availability of railway rakes to supply coal from the pitheads to the 150-odd plants situated a good distance away. Indeed, coal output in the summer months can be improved if there are rakes to transport the coal away from the pithead (where mounds of it would be a fire hazard at high temperatures) to the power stations. It is a mystery as to why the increased capex outlays in the Railways have not translated into improvements in this crucial area. Extra rakes on coal transport routes should be deployed without delay. There is also a more endemic problem that is holding up coal supplies to power plants: the unpaid dues by Gencos to Coal India, which in turn is because Discoms have not paid the Gencos. A sum of Rs. 1.23-lakh crore is payable by Discoms to the Gencos. Meanwhile, resource-strapped Gencos are operating at a PLF of about 60 per cent. While a clean-up of the affairs of Discoms cannot be achieved overnight, a financial intervention that improves the cash flows of Gencos can alleviate the crisis.

Meanwhile, there is a need to look at climate change as a factor impacting coal demand. According to a September 2021 Crisil report, coal consumption by power plants in the month of April exceeded the monthly average of 51 million tonnes in FY19, FY20 and FY 22 (FY21 being an aberration owing to the recession), and this is likely to be repeated this month as well, if rising demand is to be met. A late monsoon retreat curtails output in coal mines, creating shortages in September-October when the heat is still on, while the onset of an early summer reduces the winter window (characterised by weak demand) to ramp up output, reducing inventories. An output increase in the summer months is the best way out.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s