The coal availability scenario in India has witnessed a major turnaround over the past two years. Owing to significant efforts by Coal India Limited (CIL), coal production had increased considerably. However, of late, power plants have again been facing coal shortages that continue to pose challenges in power plant operations. Industry experts and stakeholders share their perspective on the issue…
After almost two years of oversupply, are coal shortages again becoming an issue for power plants? What has been the impact of the shortages so far, and what are the solutions and strategies to help address the issue?
Domestic coal production has been a concern this year. In the first six months of 2017-18, coal production increased by 1.8 per cent, while power demand grew by 5.2 per cent during the same time. This led to a diversion of coal from other sectors to the power sector, reduced stock-piles, increased coal imports by non-power sector industries and a sustained increase in prices on the power exchange. Specific to the power sector, average power prices increased by nearly Re 0.50 per kWh after falling continuously for three years.
The government still has plans of reaching 1 billion tonnes of domestic production in the future. So, in my opinion, this is just a short-term situation and over the long term, domestic coal production will increase to support the requirement for coal in the country.
Coal stocks of thermal power plants (TPPs) across India have been depleting to dangerously low levels since May 2017, with several plants having virtually no coal for extended periods of time. Coal stocks fell to as low as six days (average) in October–November 2017, with as much as 24 GW of installed thermal capacity having coal stocks of less than a week. However, with the intervention of the government and a fall in demand due to winter kicking in, the situation seems to be improving. The average coal stocks rose to 12 days on December 4, 2017. The coal ecosystem consists of producers (coal miners), transporters (rail, road and waterways), and consumers (power generating companies, steel manufacturers, etc.) and depends on the harmony among these three major players. If there is a lag due to any of the three players, the entire ecosystem suffers. The current coal deficit situation in power plants could be the result of gaps in integrated planning across various parts of the coal value chain.
The country’s energy demand and peak demand have grown considerably over the past five years. However, due to the rapid addition of renewable generation capacity, the plant load factor (PLF) of thermal power plants has fallen from nearly 75 per cent in 2010-11 to nearly 62 per cent at the end of 2016-17. For 2017-18, up to October 2017, the average PLF of thermal plants stands at around 59 per cent. Moreover, the supply gap of coal has gone down from around 12 per cent in 2011-12 to less than 4 per cent in 2016-17, and coal imports have also fallen since 2014-15. Moreover, coal production has increased steadily over the years, while demand fell in 2016-17 as compared to 2015-16.
Further, the offtake of coal by TPPs was substantially lower in 2016-17 as compared to 2015-16. Due to low demand, stocks at the pitheads increased by around 12 per cent of the coal production in 2016-17 (approximately 77 million tonnes [mt] by the end of 2017). Thus, it can be inferred that coal production, though not meeting targets, could not be the reason behind the current coal shortages. Data indicates that while coal-based power generation has increased by 5 per cent, coal production has increased by only 2 per cent. The coal despatch to the power sector has also increased 5 per cent. Coal stocks, which were at 77 mt by the end of 2017, have decreased to offset lower coal production.
Moreover, coal imports by the power sector have come down to around 39 mt in 2017-18 (April–November) from approximately 45 mt in 2016-17 for the same period, as per the Central Electricity Authority. Piled-up stocks along with production issues due to the rainy season have resulted in lower coal production between April and June 2017. Moreover, hydel generation was consistently lower than the targeted levels in 2017. Thus, since July 2017, prices and PLFs of coal-based power plants have been increasing to compensate for lower hydel generation. This resulted in the clearance of stocks at the coal mines and a higher demand for coal. Adding to all this, coal despatches have increased, albeit a little later than required due to information asymmetries in the system. Repairs on some railway tracks led to a further delay in coal transit. With a limited number of rakes and wagons, many states like Maharashtra faced a shortage of coal. This has resulted in critical and supercritical coal stock levels at power plants from May 2017. Thus, the coal shortages seem to be the result of poor planning by power generators and coal miners, and issues with coal logistics. This shortage hit the generation companies as well as other consumers of coal such as steel and aluminium producers. Moreover, with a high focus on the power industry, the railways had to divert a number of wagons meant for steel companies to supply coal to power plants. As a result, steel majors, which are already reeling under international price pressures, had to resort to buying coal from the spot market, eroding their margins further. The sudden shortage of coal led to coal stocks being reduced to critical and supercritical levels at some power plants. With the resulting power shortage in some parts of the country, power exchange prices reached a five-year high.
The situation could have been avoided through better integrated planning between power generation, coal production and logistics players. Indian Railways is slated to complete certain strategic railway lines in Odisha (Jharsuguda–Barapali rail link) and Jharkhand (Tori–Shibpur–Hazaribagh link) by the year end, which could significantly increase the coal evacuation capacity. This would go a long way in reducing the congestion in the railway network. Once the railway network congestion is eased and there is proper planning of coal procurement by generators and production by coal mines, this situation should not arise in future. However, with the rising price competition from renewables and higher renewable energy penetration, the challenge of being in the merit order and flexible generation is a justified concern for conventional generators. This calls for a long-term strategy on renewable integration to avoid last-minute responses to coal shortages/lower renewable generation. Integrated resources planning with the help of digital technologies such as data analytics, demand forecasting and predictive analytics will play a critical role in avoiding coal shortages by providing better insights and visibility in overall planning, production and logistics.
Coal shortages are certainly plaguing the performance of power plants in the country; in fact, it is a combination of coal shortages and the inability of the railways to provide rakes in a timely manner to move coal. The result is that both generators and distribution utilities, which are already not in the pink of health, are pushed further into the corner. With a slight pickup in demand for power as compared to last year, generators were looking forward to improved PLFs and, therefore, improved top lines. That hope has to a large extent been belied. Discoms were also left scurrying for power, even when they had firm power purchase agreements in place.
As a result, both were put to a loss. This mismatch has come about due to asymmetric liberalisation. While generation was liberalised as a result of the Electricity Act, 2003, leading to an explosion in private investment in this sector and the consequent dramatic increase in generation capacity, coal mining has remained the preserve of CIL. This was further complicated by the cancellation of coal blocks following the Supreme Court order. The subsequent auctioning of blocks could not reverse the consequences of the cancellation of coal blocks. It would be unrealistic to expect CIL alone to match the investment requirements that are necessitated by the explosion of investment in generation. The required strategy, therefore, is clear: true liberalisation of coal production. Similar liberalisation would also be required in electricity distribution, but that is a different topic altogether.