Spot Power Prices At Three-Year High Amid Coal Crunch

A sudden spurt in power demand during the festival season has left India's coal stock at its lowest in nearly three years, pushing up electricity prices in the spot market to their highest during the period.

Coal-fired plants meet nearly three-quarters of India's power demand, according to the Central Electricity Authority. About a quarter of 112 such units are close to running out of fuel—16 had coal for less than four days, a super critical level; and 10 for less than the critical seven days, said the October 26 report of the regulator. Fifteen plants with a combined capacity of eight gigawatts were shut due to coal shortage in September-October, the CEA data show.

State-owned Coal India Ltd., the world's biggest miner of the fossil fuel that caters to nearly 70 percent of the demand from power units, missed its half-yearly production target of 243.30 million tonnes by 5 percent. At the same time, output from nuclear and hydel projects declined as units were shut for maintenance, said Sambitosh Mohapatra, partner (power and utilities), PwC India.

“Private sector plants didn't stock coal to the extent they would have done, and then the demand went up suddenly,” he said. “The direct implication was short-term power prices going up and a coal crisis.”

Power costs started rising in August as coal stock declined. The average monthly spot prices are the highest since October 2014, according to data on the Indian Energy Exchange.

State-run National Aluminium Company Ltd. shut three of its captive power plants and cut production due to coal shortage, newswire PTI reported last week quoting Nalco Chairman and Managing Director Tapan Kumar Chand. While the aluminium maker requires at least 17,500 metric tonnes of coal every day, it's getting only 13,000 MT from Bharatpur mines of Mahanadi Coalfields Ltd., the report said.

There is an overall shortage at Mahanadi Coalfields and the target has not been met because of law and order, Susheel Kumar, secretary, Ministry of Coal, told BloombergQuint.

Nalco isn't alone to have cut power production. Units have been shut at thermal power plants at Kota and Suratgarh in Rajsathan, Raipur in Chhattisgarh; Satupra in Madhya Pradesh; and Khaparkhedha, Warora and Amravati in Maharashtra.

PwC's Mohapatra said some states may start rostering power based on the affordability of utilities and may even cut electricity to 18 hours a day.

"Uttar Pradesh, Madhya Pradesh, Gujarat, Rajasthan, Maharashtra are critical for coal supply,” according to Kumar said. “We have accelerated supply in these states through railways and the situation will normalise in 10-15 days."

Railway Minister Piyush Goyal, earlier in charge of power and coal, denied “any shortage of coal per say”, saying that the states were “relaxed in carrying the right amount of coal to their power plants” because of easier availability. “And then, due to rains it was difficult to load and transport coal. Because of heavy flooding in some of the mining areas, we could not load coal. The Dhanbad line had to be shut down due to safety reasons,” he said in a press conference last week.

“Supply of coal to power plants has increased by 17-20 percent in the last two months,” Goyal said. The CEA data suggests otherwise. Coal stock at power plants declined during the two months.

Coal secretary Kumar blamed power companies for not stocking in advance. "We have been telling power plants since June to stock coal but they didn't follow and wanted to clear the inventory. Suddenly, when demand rose, and there was a shortfall in hydro and nuclear power, all the power was dependent on coal," he said.

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Private producers don't agree. The government didn't ask them to stock fuel in advance, said Ashok Khurana, director general at Association of Power Producers. “Private power plants are also facing shortage. Demand jumped suddenly and there was a cut in hydro and wind production. Coal India could not supply fuel.”

The railways said it's dispatching 375 rakes to various places, higher than last year's average of 335. Mahanadi coal loading has improved in the last few days, according to Mohammad Jamshed, member-traffic at the Railway Board.

The average availability of coal has improved from three to four days to around six days now, Jamshed said. “There is no shortage of wagons and we have all the rakes available. We are monitoring every single power house.” The target is to have 250 rakes for Coal India alone every day.

The crisis can bring back long-term power purchase pacts. Barring Kerala and Uttar Pradesh, no state has opted for long-term pacts in the last five years, Mohapatra said. Many states will start putting in long-term procurement tenders as the spot prices have shot up, he said. “That would be good for the power sector because 20,000-25,000 MW capacity has not got tied up. If states sign long-term contracts, this capacity will be used.”

India wants to end coal imports by government-owned power companies in the year to March 2018 but so far they have already imported more than 1.5 million tonnes of fuel, according to Atin Jain, analyst at Bloomberg New Energy Finance in New Delhi. “Coal imports may continue for blending with domestic supplies, but may increase if the domestic supply constraints persist.”