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Power demand increases, but fluctuation in coal supply a concern

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Power demand revived in the country in October, rising by around five per cent year-on-year (YoY) but supply fell short by 1.4 per cent due to falling coal inventories across power plants. Coal stocks declined 78 per cent year-on-year across stations, with 93 plants having stocks for less than four days last week.

Coal dispatches to the power sector are expected to improve in the coming days with Coal India Limited (CIL) regulating its supplies to other sectors and speeding up evacuation of its 40 MT of inventories lying at its bed. Power demand had remained subdued in September 2021.

As per a latest report by HDFC Securities, coal stocks across power stations declined this month with as many as 93 stations having super critical levels of inventories (with four days of coal stock) last week.

Reduced operation of  imported coal based stations due to a steep rise in international coal prices ( an increase of 215 per cent YoY to US $160 per tonne), rise in freight cost, robust power demand due to rise in temperature, arrival of festive season, supply restrictions by CIL for non-clearances for past dues, and low coal inventory across power stations in September had led to a 78 per cent year-on-year decline in coal stocks across power stations in the country.

The report observes that lower wind generation across Tamil Nadu, Gujarat, and AP forced them to procure power from the spot market. Supply crisis had led to a 300 per cent YoY rise in spot rates to Rs 10.9 per unit during October 2021. The report points out that with the intervention of the coal and power ministry, the situation is likely to be normalised in the next seven to ten days with CIL expected to enhance its dispatch and clear off 40 MT of its inventory. Besides, a few states agreeing to procure power at higher rates from the Mundra stations and the onset of winter in November are expected to bring down the deficit.

“We expect power demand to rise 12 per cent in FY22, led by improved economic activity. The Central government’s liquidity package under the Atmanirbhar scheme has significantly improved liquidity for discoms (distribution companies). Further, with CCEA approving the Rs 3.03 trillion reform linked package, we can  expect improved infrastructure Capex from discoms over the next three to four years. This can also promote  private participation in the discom space,” said Anuj Upadhyay, Institutional Research Analyst, HDFC Securities.

The HDFC report points out that in September power demand improved steeply across Maharashtra, Chhattisgarh, Karnataka, Kerala, Tamil Nadu, Telangana and Odisha on YoY basis. Demand, however, declined across Punjab, Rajasthan, Uttar Pradesh, Haryana and Jharkhand. At the same time power generation increased significantly across Uttarakhand, Maharashtra, Chhattisgarh, Karnataka, Kerala, Tamil Nadu, Telangana, Bihar and Orissa, mirroring the growth in demand. Power generation, however, declined steeply in Haryana, Punjab, Rajasthan, Gujarat and Chhattisgarh. Fall in generation in Gujarat is largely due to a fall in Mundra plant generation, which is attributable to a steep rise in imported coal prices, making the plant unviable to operate.

As per another latest report by CRISIL Ratings, coal stocks are unlikely to improve to the previous level of 15 to 18 days inventory anytime soon. As per the report, at a a pan-India level, over 70 per cent of power produced is via coal route. The dependence on coal based generation, however, varies widely between states. The CRISIL report says that Bihar, Telangana, Tamil Nadu, Uttar Pradesh and Maharashtra and to a certain extent Gujarat are structurally at higher risk of being impacted by disruptions in coal purchases, either due to higher dependence on the fuel type or higher short term purchases impacting overall pick-up.

An interesting analysis in the CRISIL report observes that Telangana, Uttar Pradesh and Maharashtra have higher dependence on coal compared with the rest of India, whereas Bihar, on its part, is vulnerable because while it meets 54 per cent of its need directly via coal-based generation, a further 18 per cent comes via short term power purchases from other states, which would also be coal-based primarily. The CRISIL report states that higher dependence on coal based power seen in the first half of this fiscal may continue into the second half of this fiscal also.

The massive increase in power demand in April to September 2021 was not distributed equally among the different sources of power. Coal-based power generation rose 19.1 per cent YoY, while generation from other conventional sources saw a  15.5 per cent on year decline. On the other hand, power generation from renewable sources rose 16.7 per cent on-year while the hydro, gas and nuclear, which typically comprise 16-17 per cent of the total power generation, saw a steep decline due to a combination of factors. Hydro generation, which accounts for 12-13 per cent of monthly generation on average, declined 15.3 per cent on year during April-September 2021 due to deficient and uneven monsoons. Gas generation, which accounts for 3-4 per cent of monthly generation on an average, saw a 26.4 per cent on-year decline as gas prices increased by 1.5 to 2.5 times. Nuclear generation, which accounts for 2.5-3.5 per cent of monthly generation on average, declined 2.4 per cent on-year due to maintenance shutdowns at three NPCIL plants in south India.

The CRISIL finding states that a ramp-up in coal generation pushed up its share in the overall power pie to 71 per cent, compared with a  67 per cent last year and an average of 70 per cent over fiscal 2019-2021. This meant an additional 7.5-8 billion units being generated via coal over this period. The consumption rate has also intensified as usage of domestic coal of lower calorific value increased, due to a decline in imports (higher calorific value) over the period.  

[ad_2] Courtesy – www.theweek.in

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