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Energy

India nears widespread power crunch on coal shortage

Rising prices of fossil fuel leave most plants with only 3-day stockpile

A worker repairs power lines on a pole in Kochi, India. Soaring coal prices caused Indian imports to drop more than 30% in August and September from the average in July.   © Reuters

TOKYO/MUMBAI -- India stands on the brink of widespread power shortages as most of the country's coal-fired plants have enough fuel for only a few more days, the latest reports show.

More than half of India's 135 coal plants will run out of fuel in less than three days, the Financial Times and Reuters wrote over the weekend, citing government sources. As of Friday, the stockpiles of all coal plants averaged four days.

Coal-fired plants account for about 70% of India's power source mix.

Though New Delhi recommends having at least two weeks' worth of coal stocks on hand, the average shrank to 13 days in early August. As the country's economic activity picked up with the declining rate of coronavirus infections, industrial demand for electricity mushroomed.

Power consumption in August and September exceeded the volumes from the same months in the pre-pandemic year of 2019. The government, anticipating that demand will remain at current levels, ordered power companies to boost their stockpiles of coal.

But supplies have been tight as global coal prices rise. India is the second-largest importer after China, taking in the fuel mainly from Indonesia and Australia.

Spot prices for Australian thermal coal, an Asian benchmark, surpassed $200 per ton as of early October. The value broke the record of about $185 set in July 2008.

Not only has Asian coal demand surged as economies revive, Western nations increasingly are procuring coal as a substitute for natural gas, which is also experiencing price gains.

The record prices caused Indian imports of coal to drop more than 30% in August and September from the average in July and previous months. Indian electric companies tried to make do by purchasing cheaper coal produced domestically, but those plans were dashed when last month's torrential rain caused production cuts at mines.

Coal India, a state-backed enterprise, produces over 80% of the country's coal, but supplies from the company have not offset the losses in imports.

In neighboring China, the coal crunch has triggered serious power shortages affecting at least 20 provinces. Blackouts have occurred in Liaoning and other northeastern provinces. Suppliers for Apple in eastern Jiangsu Province suspended factory operations.

China is moving to secure fossil fuels, looking to avert power shortages during winter. Asian coal prices are expected to jump higher due to that pressure, and coal supplies in India might not recover for some time.

"Imports remain the only option to meet demand" in the near term, Indian credit rating agency Crisil, part of the S&P Global group, wrote in a recent report. "In our view, coal inventory at thermal plants will improve only gradually by next March."

No major power outages have been confirmed. But if industrial sectors face electricity shortages, India's economic reopening would be delayed.

One source at a steelmaker said operations are not expected to be impacted immediately, but the situation is being monitored.

Coal India will boost supplies for power plants, but cut back on deliveries for companies that use in-house generators, such as metal and cement makers. Some businesses are reportedly considering downscaling production.

An aluminum industry group has sent Coal India a letter urging the company to maintain supplies, according to a local newspaper.

"Although the higher prices of imported coal are putting upward pressure on production costs of steel and other products, household electricity demand from air conditioners will diminish going into winter," said Ram Giri, researcher at Mitsui & Co. Global Strategic Studies Institute. "India's power crunch will not deteriorate to China's level, so the risk of blackouts will likely be limited."

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