AI Insights

Coal Shortages in India

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This post has been authored by Manisha Rikkula, the Research Analyst Intern at Arthashastra Intelligence.

In recent times Coal stock has gone below the critical mark (25 percent of the necessary stock) in over 100 thermal power plants in India, and it has fallen below the 10% mark in over 50 plants.  The country is expected to remain uneasy for up to six months, as an increasing number of Indian thermal power plants have reduced their storage to four days, compared to the government\’s recommendation of 14 days. This is even though India has the world\’s fourth-largest coal reserves.

This had considerable influence on power generation in several states, including Gujarat, Punjab, Rajasthan, Delhi, and Tamil Nadu. Northern states have had severe shortages.

in April 2022, Jharkhand saw a 17 percent power outage. J&K and Ladakh have been experiencing an 11.62% supply shortage every day for the previous week in April. This was followed by Andhra Pradesh (10%), Haryana (7.67), Uttarakhand (7.59%), Bihar (3.65%), MP, HP, and UP.

Figure 1

Reasons behind coal shortages:

  • After the second wave of COVID-19, the demand has revived in the economy across various sectors. Moreover, summers have an inherent need for a surge in electricity demand owing to hot days. the power consumption has increased by about 17% in the previous two months compared to the same period in 2019.
  • International coal prices are at record highs because of increased global demand for coal industries. Imported coal power output fell by 43.6 percent, resulting in additional demand of 17.4 MT of local coal, further depleting coal supplies.
  • Due to frequent rains in coal-mining areas like Gujarat, Punjab, Rajasthan, Delhi, and Tamil Nadu, coal production has decreased. Furthermore, most thermal facilities had insufficient coal stockpiles before the monsoon season, causing them to fall below critical levels.
  • The supply situation is being exacerbated by a scarcity of trains that bring coal to power facilities. The Indian Railways commits 415 trains per day, which is 8.4 percent less than the 453 required by the utilities. From April 1 to 6, the actual number of trains available per day was 379, which was 16 percent less than the required amount.
  • An increase in the risk profile of coal-fired generation has resulted in a drop in investor interest and higher target investment returns for new power plants.

The coal shortages result in both production and consumption difficulties. There might be stagflation tendencies if shortages persist for longer. On the consumption side, the demand is going to ease only in the winter months.

The way forward and the government’s response:

  • The power ministry has encouraged states to use the central generating stations\’ assigned power to satisfy their own needs.
  • The Indian government asserts that it is collaborating with state-owned enterprises to enhance coal mining and production, as well as sourcing from captive mining that works for a certain corporation. States like Andhra Pradesh, Gujarat, Maharashtra, Jharkhand, Bihar, Haryana, and Uttarakhand have used load shedding and planned outages to meet the peak demand. The Centre has permitted states to utilize up to 25% of their captive coal reserves to meet rising domestic demand. It also allows power plants to blend imported coal up to 10% of the time to reduce the pressure on CIL.
  • Coal India Limited intends to liquidate pit-head coal stocks quickly and prioritize coal distribution. Relaxing the environmental restrictions that currently prohibit mine development could make more land available for mining.
  • Experts recommend investing in diverse power sources, including a mix of coal and clean energy sources, as a long-term solution.
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