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India continuing to grapple with ‘severe and protracted power crisis’ after surge in coal prices

New Delhi, June 28, 2022- India is continuing to grapple with a “severe and protracted” power crisis after a sustained surge in global coal prices in late-2021 was further aggravated by Russia’s invasion of Ukraine in February, S&P Global Commodity Insights said.

The global price pressure eroded India’s import volumes and reduced its power plant stockpiles to critically low levels just as an unrelenting heat wave pushed demand to unprecedented levels. The country generates more than 75% of its power from coal, and is the world’s third-largest producer of electricity at 1,383 TWh/year.

The crisis is “so severe” that government authorities in India – the world’s second-largest coal producer, importer and consumer after China – are “threatening to cut domestic coal supply to power plants that are reluctant to import coal at current elevated prices”. The current deficit, the second such coal shortage since October 2021, was initially triggered by the sharp rise in global coal prices in mid-2021, S&P Global Commodity Insights said.

In early 2022, before Russia invaded Ukraine, Indonesia’s most popular coal grade, Kalimantan 4,200 kcal/kg GAR coal, traded at $65.45/mt FOB. Since then, the disruption in global coal supply has led to a near 30% surge in the grade’s price to $86/mt on June 9, according to S&P Global Commodity Insights data.

To meet India’s rising power demand as Covid-19 restrictions eased, the government first tried to boost domestic coal production, which rose to 777 million mt in FY 2021-22 from 716 million mt in FY 2020-21, coal ministry data showed.

India has long harbored ambitions of reducing coal imports to zero by 2030 and state-owned Coal India has said that it targets hiking its domestic production to 1 billion mt coal by FY 2023-24.

The government has also tried divesting coal blocks to private companies in recent years to incentivize them to increase India’s overall coal production.

Domestic coal-based power production could not keep pace with the surge in electricity demand and India began to experience widespread power shortages more severe than anything the country had seen in at least seven years.

India’s federal power ministry is currently scrambling to get an estimate of the coal shortage outlook for September and has asked the world’s largest producer of coal, Coal India, to procure coal on behalf of power plants at federal, state and other levels, S&P Global Commodity Insights said.

With the global coal supply expected to remain tight in H2 and winter still some months away, coal shortages and power outages may well remain a pressure point for India for the rest of the year.  (Agency)

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