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India is the latest country to face a serious power crisis that threatens to undermine its recovery from the pandemic, with authorities warning that power stations are dangerously low on coal.
According to the Indian Ministry of Power, the 135 thermal power plants of the third largest economy in Asia had on average only four days ‘supply of coal from Friday, compared to 13 days’ supply in early August. Of the plants monitored daily, more than half have less than three days’ supply.
Power supply has already begun to hit the economy in neighboring China, where the manufacturing sector suffered its first contraction since the start of the pandemic last month. Beijing order it state-owned energy companies to secure fossil fuel supplies at all costs to prevent winter shortages, which help raise prices for other major importers, including India.
“The [Indian] power sector faces a kind of perfect storm, ”Said Aurodeep Nandi, India’s economist at Nomura Financial Advisory and Securities. “You are trapped in a situation where demand is high, your supply from the local side is low and you have not filled stock.”
India’s generators have reduced coal imports in recent months as international prices have risen due to strong global demand from Europe as well as China. The government of Prime Minister Narendra Modi also promoted a policy of Indians economic independence as a guiding principle for the recovery of the pandemic.
Yet India’s cheaper domestic coal stock — nearly 80 percent of which comes from the massive, inefficient state-owned enterprise Coal India Ltd, has not kept pace with the increase in domestic demand.
The Ministry of Power said over the weekend that heavy rains in September in coal mining areas hit both coal production and supply, while the plants themselves could not build up their inventory before the monsoon season. It has instructed power companies to build up inventory, in the expectation that demand levels are likely to remain “at current levels”.
The shortage now raises the prospect of looming, large-scale power outageshigher consumers’ electricity prices, or a hit in the power supply of the generators, in an economy where coal-fired power plants are now responsible for about 66 percent of the power generation, compared to about 62 percent in 2019.
‘Fundamentally we were so laser focused claim recovery ‘of the pandemic – which was such a central phase – that all these supply-side issues were not in the spotlight until they started biting,’ Nandi said.
India’s power consumption in August and September rose sharply to 124.2 billion units, compared to 106 billion units in the same two months in 2019, as a sharp drop in Covid-19 cases and strong progress in vaccination rates encouraged many Indians have to resume their normal activities.
However, coal from Indonesia, one of India’s main suppliers, rose from $ 60 / tonne in March to $ 200 / tonne in September, discouraging imports.
Although India has long sought to reduce its heavy dependence on imported coal, which was a major contributor to its trade deficit, Nandi said that New Delhi is urgently needed to help Coal India increase production, or that power producers imports will have to scale up regardless of price.
“If the government does not increase production or increase imports, there will be power outages,” he said.