Can Indian power sector afford coal imports to meet spike in demand?

State discoms remain financially stressed and are against imports, while domestic coal availability is under pressure

The power sector is staring at a gloomy road ahead.

Demand in the country on Thursday touched a record high of 203 Gw owing to an intense heatwave and economic activities picking up speed.

This comes at a time when the Centre is pushing for imported coal -- after having shunned it for several years -- in the wake of a shortage in the domestic market.

But this has stretched the supply chain, which has to deal with a price of Rs 10,000 per tonne. At one end of the chain, state-owned power distribution companies (discoms) continue to be financially distressed and not in favour of coal import. At the other end, domestic coal availability and supply are under pressure, and in the midst of this, rail infrastructure is spread thin.

The old mismatch problem

Power plants accounting for close to 81 per cent of India’s operational coal-based power generation capacity are situated away from mines (500 km and above). While ideally most thermal power generation in any country should be close to mines, it is the opposite in India, said a Delhi-based sector analyst.

“Be it political obligation or private investment, there’s hardly any rationale for a power plant to be situated 500-1,000 km away from coal mines,” he said.

The Indian Railways faced the fallout of the situation this year, when it had to cancel passenger trains to make way for more coal to move from the eastern coal-bearing states towards plants in the north and east.

In a matter of 26 days, the railways cancelled 1,053 trips involving 42 trains, mostly in the South East Central Railway zone. The striking aspect was that despite the freeing of tracks, delays in loading and longer transportation times ensured that the supply wasn’t augmented to its optimum.

Average lead is the distance each tonne of freight has been transported. Through the combined efforts of stakeholder ministries, the average lead of coal for thermal power plants had fallen from more than 708 km in 2011-12 to 496 km in 2016-17, said officials. But the trend reversed as demand went up, with average lead in May seeing an increase, reaching 554 km as against the 517 km in the previous year.

“This year, as power demand increased, the railways had to supply more coal to faraway power plants, which is why our average lead this month increased. Ideally, we’d also want shorter leads since longer ones would mean that our wagon turn round (WTR) would be higher,” a railways official said.

Owing to track congestion and delays, the current average speed of freight trains is 18.8 km an hour (including stabling and yarding time).

Acute stress of discoms and coal mining woes

Coal India Ltd (CIL), the largest supplier of the dry fuel in the country, has been criticised since the crisis broke out. Despite increased production, the lack of an accurate demand forecast, coupled with payment delays from discoms, caused stress on the supply line.

Growth in domestic coal production by CIL has been subdued over the past five years with a compound annual growth rate of 2.4 per cent, said Sabyasachi Majumdar, senior vice-president, Icra.

He said while the domestic supply to the power sector did increase by 25 per cent in FY22 year-on-year, the stock levels at the thermal units continue to remain low, sufficient for eight-nine days, over the past six months.

“There is a mix of reasons, including sharp growth in electricity demand and subdued utilisation of the imported coal-based projects due to the prevailing high international coal prices, given their inability to pass on the higher fuel costs under the power-purchase agreements,” Majumdar said.

Imported coal-based plants, whose capacity totals 17 Gw, are shut, thereby increasing demand pressure on domestic coal-based units. Icra said coal imports by power utilities decreased by 40.6 per cent year-on-year in FY22.

In the midst of this, the Union power ministry asked CIL to import coal even as the coal ministry continues to claim there is enough domestic supply. But as against the estimated demand of 38-40 million tonnes (MT) from state and private gencos for blending, the demand received by the CIL is 2.4 MT. For next year, CIL has placed a tender for importing 6 MT, said CIL executives.

The sole reason for not many states showing interest in imported coal is the cost. At Rs 10,000/tonne, imported coal is at least twice the price of the coal CIL supplies. NTPC, which is in the process of issuing tenders for 20 MT, will see the power tariff at its units go up by 50-70 paise.

The power ministry last week allowed state and private units to charge a compensation tariff in lieu of importing coal. But not many discoms cannot afford it due to their weak financial situation. A senior executive with a state regulatory commission said the coal demand supply mismatch, with the discoms being sick, would lead to stress across the supply chain.