India’s coal shortage crisis reflects the precipitous decline in coal inventory at power generation plants, with inventory declining to 3-4 days, compared with the 21-day norm. Concerns have permeated across the country, worrying industrial as well as agri-dominated states, which are flagging risks of severe power cuts. This comes after reports that over half of the 135 coal-fired utilities, which supply more than half of India’s electricity, have fuel stocks to last just under three days.

The government attributes the crisis to several factors, such as a) an unprecedented rise in power demand in a resurgent economy, b) heavy rains in coal mine areas, and c) a reduction in power generation from plants that depend on imported coal due to a steep rise in prices.

However, a closer look at the trends in coal production, dispatch and power generation indicates that it is a poor coal supply management that failed to anticipate the impact of the pandemic on seasonality, which is at the root of the problem; definitely not an upsurge power consumption.

The primary reason is disturbance in the seasonal pattern of power demand caused by the pandemic shock, which saw an unusual demand upswing in 1H2021 while coal supply responses lagged considerably as it was aligned to the earlier seasonal pattern. This caused a disturbance in the typical power generation/coal dispatch ratio. Growth in power generation during Jan-Jun’21 averaged 23 per cent YoY, vs. 1.2 per cent for coal production.

Thus, with dispatch trying to match power generation (19 per cent YoY), the inventory level was already declining in 1HCY21 from 21 days to 10 days (NTPC). The onset of the monsoon prevented replenishment of coal inventory even as demand gained in the Covid Wave 2 recovery, thereby accentuating the imbalance, leading to a further decline in inventory to 4-5 days by Sep-Oct’21.

The plant load factor (PLF) for coal-based power plant increased sharply to 67 per cent by Apr’21, or to a 5-year high from 42 per cent a year ago, while that of gas-based plant it declined to 28 per cent to 20 per cent. Thus, dependence on coal-based power sources was rising ahead of the current inventory shortage. While the PLF for coal-based plants has declined after Apr’21 the onset of the monsoon season, the lack of coal inventory replenishment due to heavy rains accentuated the decline in inventory.

The unprecedented rise in global coal and gas prices saw a decline in imports. Coal imports declined by 37 per cent in Aug-Sep’21 to 14-15mn tons compared to the Jan-May’21 average. This also caused higher dependence on domestic coal, thereby contributing to the decline in coal inventory.

The argument that there has been a very strong rebound in power consumption is relevant only in the context of the weak conditions in 2019 and 2020 which saw economic slowdown caused by global trade conflicts (2019) followed by the pandemic (2020). Thus, 2QFY22 power consumption grew over 2QFY21 and 2QFY20 by 5.8 per cent and 10.4 per cent respectively or higher compared to the average of 6 per cent during 2008-2020. But compared to 1QFY19, power consumption in 1QFY22 growth averaged much lower at 2.9 per cent.

Indeed the latest revelation of the coal ministry’s letter to Coal India indicates that there was advance knowledge since Apr’21 about the emerging coal shortage and power crisis. Hence, it is ironic that coal shortage is happening despite Coal India sitting on a vendible coal stock of 44 MT as of the end of Sep’21.

The government has set up a task force to resolve the situation and Coal India has committed to scaling up coal production/dispatch on a war footing. But still, looking at a similar situation in Sep’2018 when NTPC’s coal inventory fell to a low of 7 days, it will be realistic to assume that the minimum 21-day inventory norm would take 3-4 months to reach.

Assessments of state-level consumption demand and states’ dependence on coal-based power supplies indicate that economic activities would be impacted in industrial states such as Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh as well as agri-dominated states such as West Bengal, UP, and Madhya Pradesh. Hence, the potential impact on manufacturing and agriculture can trigger supply-side pressures in the near term.