Explained: Why is India Experiencing Coal Crisis

Mere few days ago, people were in chaos as Facebook and its products were down for over six hours (1). Imagine if you had to spend an entire day or days without electricity. And looking at the present scenario, it could be an unfortunate reality.

Thermal power plants in India face a grim coal shortage, with coal stocks dropping to an average of four days of coal across an increasing number of thermal stations pan India (2).

According to R K Singh, the Union Power Minister of India, while the supply crunch has not led to any load shed in the nation, the coal supply situation may remain “uncomfortable” for the next six months (3).

However, the burning questions include the reason behind the situation, how severe it is, and what measures are our government taking.

The Extent of the Coal Shortage in India

The average coal stocks level in India’s increasing number of thermal power plants has come down to only about three to four days worth of stock compared to the government’s recommended 14-day worth of coal stock holdings for power plants.

According to reports (4), on 4th October, about 16 power plants across the country with a power capacity of more than 17,475 megawatts had zero days of coal stock. The reports also suggest that about 45 other thermal power plants with a power generation capacity of more than 59,790 MW had coal stock for only about two days to generate power.

In total, thermal plants with a power generation capacity of more than 132 GW (1 GW = 1,000 MW) of the 165 GW capacity monitored every day had supercritical coal stock levels. The coal shortage is more severe in non-pithead power plants or plants not close to coal mines. It is considered that out of 108 total plants witnessing critical coal stock levels, over 98 of them are located far from coal mines in less than eight days.

Notably, India’s coal-fired thermal power plants account for more than 208.8 GW or about 70% of India’s 388 GW installed power generation capacity.

As per the most recent available data from the power ministry, released on Wednesday, out of 135 coal plants in India, 108 are facing critically low stocks, with more than 28 of them down to only one day’s worth of supply (5).

On average, coal supplies at power plants have dropped to about four days worth of stock, stated the ministry in a statement, a sharp plunge from 13 days in August.

It is also worth highlighting that power consumption in August this year increased by almost 20% to 124 billion units of power from 106 billion units power in the same duration in 2019, before the coronavirus pandemic struck, stated the power ministry.

Notably, coal-fired thermal power plants have also supplied a higher proportion of the rise in demand leading the share of thermal power in the country’s power mix to rise to 66.4% this year, compared to 61.9% back in 2019.

Why is India experiencing Coal Shortage?

There has been a sharp increase in power demand as the economy recovers from the pandemic coupled with supply and other issues, leading to the current coal shortage (6, 7).

According to Vibhuti Garg, an energy economist at the Institute for Energy Economics and Financial Analysis (8), “Noone expected economic growth to revive rapidly and for energy demand to pump up so quickly.”

Garg further talked about how the unusually heavy rains have worsened the shortfalls in supply by mines flooding and other disruptions.

India mostly relies on domestically mined coal. However, according to experts, increasing imports is also not an option, with global prices rising at all-time highs.

The coal prices in Indonesia, one of India’s coal suppliers, inflated to more than 162 USD per ton this month from 86.68 USD in April, boosted by heightened demand in China (9), where recent load sheds have forced factories and manufacturing hubs to shut down, and even left several households in the dark.

In other words, with the rising prices, it is challenging for India to rely on coal exports.

“Since current coal prices are about two to three times higher than what we pay for domestically mined coals at present, it is difficult for India to rely on external sources,” stated Swati DSouza, a research lead at the National Foundation of India (10).

Meanwhile, the government has asked state-run Coal India Pvt Ltd to boost production.

With rains subsiding, coal deliveries are expected to pick up soon and rise further, as per the power ministry (11).

The Government’s Measures to Tackle the Situation

An inter-ministerial team is monitoring coal supply to thermal power plants, including representatives of Coal India Ltd, Power and Railway Ministries, and the Central Electricity Authority and Power System Operation Corporation.

The government is also pushing thermal plants with captive coal mines to boost their coal output to meet more demand. In addition, the government is also prioritizing coal supplies for plants with critical stock levels.

The Power Ministry is also attempting to increase the coal supply by hastening to start coal production from mines that have already received all requisite clearances.

“Somewhere, the clearances are ready, the bidding for MDOs, Mine Developer and Operator is going. Where the land and clearance are available, we can expedite the process. I have also taken up with the environment ministry, where the clearances are pending,” stated Singh (12).

According to a press release, the government has also boosted “the number of rakes of coal being transported to power plants every day (from 248 rakes on last Sunday to 263 on Monday). We can expect to further increase the despatches from coal lines.”

The Impact

According to experts, importing more coal to make for the shortages is not an option right now, as we previously discussed.

“We have had coal shortages in the past. However, this time, the most unprecedented situation is surging prices of coal,” stated Dr. Aurodeep Nandi, the Vice President of Nomura (13, 14).

“If I, as a company, import expensive coal, I will also have to raise my prices. At the end of the day, businesses pass on these costs to consumers. Hence there will be an inflationary impact, both directly and indirectly,” added Nandi.

If the coal crisis keeps on, consumers will also feel the cost of electricity. It is also worth highlighting that retail inflation is already high as everything from food to oil has become pricey.

Over the past years, our nation has been lagging in production as it tries to cut back on its dependency on coal and other fossil fuels and meet its climate goals.

While Singh has stated that the situation would be braced in the upcoming six months, according to a BBC report (15), Asia’s third-largest economy would struggle to get back on track.

“Electricity powers everything, hence the entire manufacturing sector, construction, steel, etc., will be affected if the coal shortage continues,” stated Zohra Chatterji, the former Chief of Coal India Ltd (16).

Can India Be Coal Free?

At present, the question is how India can balance meeting the rising electricity demand and the desire to meet the climate goals.

However, in the long term, we will need a strategic plan to move towards sustainability.

“It is only the sheer scale of things. A huge chunk of India’s energy comes from coal. I do not believe we have reached that stage yet where we have an effective substitute for thermal. It is a wake-up call for India. But, even so, I do not believe that the focus of coal in our energy requirements would be replaced anytime soon,” stated Nandi.

Experts suggest a mix of clean and coal as sources of energy as a possible long-term solution.

According to Vivek Jain, a Director at India Ratings Research (17), “it is not entirely possible for India to completely transition to renewables. Moreover, it is also not a good strategy to make the 100% transition without a backup. Otherwise, you are exposing a lot of manufacturing to several risks associated with nature.”

We can avert situations like the present one with long-term investments in multiple power sources with better planning, explained Chatterji. She further believes that there is no need for closer coordination between Coal India Limited, India’s most prominent coal supplier, and other stakeholders, from demanding more accountability from power companies to ensuring a smooth last-mile delivery.

What’s Next?

While we don’t have any clarity on how long the present situation will last, we are fairly optimistic. Media reports suggest that as monsoon rains reside and winter approaches, the power demand will fall. It will iron out the demand and supply gap to an extent.

In addition, the whole world is experiencing the phenomenon, and the situation is not specifically restricted to India. If gas prices drop in the near term, we can switch to gas. In other words, the situation in which we are right now is quite dynamic.

Finally, India needs to avoid any further hurdles as it grapples with climbing out of economic impacts caused by the pandemic.

The Key Takeaways

The thermal power plants make up more than 70% of India’s power source mix.
On October 1st, the Power Minister stated that the country’s 135 thermal power plants have only an average of about four days of coal stocks left.
Heavy rainfalls in coal-mining areas have hit production and delivery.
Power plants had failed to build up their stocks pre-monsoon
Despite increased purchases from Coal India, the demand has outstripped supply.
There is also a sharp fall in imports because of increased prices.
If industries start facing shortages in the power supply, it could delay our country’s economic reopening.
Some businesses may have to downscale production.
If the power crisis continues, the domino effect could hit us long and hard considering our current energy infrastructure and large population.
State-run coal mines are working to increase coal production.
The government is also bringing in more mines on stream to boost the overall supply.