Please plan better low coal stocks are thanks to stakeholders not responding to fairly predictable events

Please plan better low coal stocks are thanks to stakeholders not responding to fairly predictable events

Coal stock at India’s power plants yesterday was 7.2 million tonnes, sufficient for just four days. This is below the buffer that should exist. Stock depletion has happened in the wake of supply disruptions in other industrial inputs such as semiconductors. But unlike other inputs where the causes are global in nature, the low reserve of coal at thermal power plants is a problem of our creation and comes just when economic activity is gaining sustained momentum.

GoI has proffered a set of reasons for the current situation. Chief among them are an unusual spike in electricity demand because of a rebound in economic activity, September rains that disrupted coal production, pricier coal imports, poor coal stocking protocol and the perennial overdue from state governments. As a package, the reasons are not entirely persuasive because they are inconsistent with both data and normal business patterns. In all, the situation reflects poorly on two key stakeholders – governments and private power generators who import coal. The monsoon cannot be used as an excuse. Disruptions during this period are not uncommon and stakeholders should have been prepared.

More intriguing reasons are ones that revolve around the spike in demand. By June, activity began to normalise and macroeconomic forecasts pointed to a substantial rebound in economic output. A spike in demand was predictable. Was it unmanageable? Not according to data. Thermal plants’ capacity utilisation, or plant load factor, in August and September have not been high enough to warrant coal stock depletion. It was 59.5% in August. In September it was 54.25%, a level lower than last year. Extrapolating GoI’s power generation data, the compound growth between the pre-pandemic year 2019-20 and the current year will be around 5.5%. In comparison, compound growth of electricity consumption between FY 2011 and FY 2020 was 7.14%. Nothing suggests a consumption spike that couldn’t have been handled with better preparation.

GoI expects the shortage to ease soon through higher domestic production. Pricier imports may continue to be a constraint. There’s a case for more flexible power purchase agreements to avoid disruptions because of swings in coal price.