After Europe and China, is India now facing a power crisis too?

·4-min read

The world’s second-largest coal producer, India, is suffering from an unprecedented shortage of coal stockpiles, leading to more frequent power cuts and triggering fear of an energy crisis similar to the one in China.

The crisis in the coal-fired power plants in India has been unfolding for months. However, the situation worsened in October with longer and more frequent power cuts in North Indian states, according to government data, and as the country faces higher energy demand during festival season.

The challenges fuelling India’s power crisis arise from a set of domestic and international factors, triggered by both a resurgence of activities post-pandemic along with climate calamities.

Coal accounts of almost 70 per cent of India’s electricity generation. Three quarters of the coal supply is mined domestically. But the remaining quarter comes from international purchases.

India’s energy consumption has been steadily rising since the country began opening up following the brutal Covid-19 wave this year, data available from the government of the last three months showed.

A similar resurgence in activities can be seen around the world with greater demand for fuel, putting a strain on global coal supplies and skyrocketing prices to a record high.

“With power demand likely to rise amid the continued economic normalisation and upcoming festive sales, supply-side disruptions pose an important near-term downside risk to growth momentum”

Nomura’s analysts Sonal Varma and Aurodeep Nandi said in a note on Wednesday

China is already on the brink of an unprecedented power crisis triggering blackouts and asking factories to cut production. As the world’s biggest producer and consumer of coal, its inventories are at record lows.

In recent weeks, energy shortages have raised concerns in countries around the world, including the UK and mainland Europe.

For India, the higher cost of energy has led to reduced imports in the recent months. In August-September India’s imports were 30 per cent lower than the average of the previous seven months, according to the Kplr data quoted by Reuters news agency.

This has led to an increased dependence on domestic supply which has brought its own set of problems. Heavy flooding in India’s eastern and central states this monsoon has impacted the production capacity of coal mines, as well as its supply routes.

RK Singh, India’s Minister for power and renewable energy recently acknowledged that the current shortage is “beyond” normal for the country. However, he added it hadn’t resulted in any power outages yet.

Reports from cities in Northern India and government Data analysed by Reuters news agency however told a different tale.

Reuters’ analysis of daily load despatch data from federal grid regulator POSOCO showed India’s power supply deficit in the first seven days of October amounted to 11.2 per cent of the country’s total shortages throughout the year.

Earlier this week, India’s Central Electricity Authority (CEA) said in a report that as many as 63 of the 135 coal-fired power plants in India have two days — or less — of coal supplies. While coal stocks at 17 of the plants have now run out.

More than half of the plants — around 55 per cent —have been running on coal stock for just five days or less, a level considered “supercritical” for CEA.

The worsening stockpile situation may not force the plants to close but makes them vulnerable to disruption in case of increased demand.

Mr Singh also told The Indian Express newspaper that the situation may not be “comfortable” for the “next five [to]six” months. However, India is set to celebrate a series of festivals in the next few weeks — including Diwali, the festival of lights, at the beginning of November.

Analysts at Nomura have warned if India is not able to fix the coal crunch soon, “power sector companies face the prospect of importing coal at significant cost,” damaging the country’s economic recovery.

“With power demand likely to rise amid the continued economic normalisation and upcoming festive sales, supply-side disruptions pose an important near-term downside risk to growth momentum,” Nomura’s analysts Sonal Varma and Aurodeep Nandi said in a note on Wednesday.

The Indian government has said it is trying to ensure adequate supply to the plants, while adding that the shortage is only in the running stocks which can be fixed. It also said it is working with government-owned companies to ramp up production and increase supply.

“We are rallying our efforts to restore normalcy as early as possible by pushing additional quantities. The demand is far outstripping the supplies now,” said S N Tiwary, Director of marketing of Coal India Limited.

Still, with soaring global coal prices and reduced imports, it may require long-term alternatives to meet the increased energy demands.

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