Rising Coal Prices

In News

• The ongoing high coal prices are set to increase input prices for independent power producers and power distribution companies.

About

• The Ukraine-Russia conflict has led to a disruption in the supply of coal by Russia, which is unlikely to be fully replaced by other suppliers. 
• The shortage, leading to high prices, has pushed up spot power tariffs on the India Energy Exchange.

Reason for rising prices

• Ongoing war: 
  • The war has led to a disruption in the supply of coal by Russia, which is unlikely to be fully replaced by other suppliers. 
• Domestic inefficiency:
  • ICRA also noted that a coal shortage was likely unless Coal India is able to ramp up domestic coal production to 700 million tonnes in the next fiscal, up from about 601 MT in FY21.
• Price increasing at source:
  • The price of Australian coal for March delivery had hit an all-time high of about $330 per tonne. Australia and Indonesia are key sources of coal import for Indian thermal power generation companies using imported coal.
• High turnaround time:
  • Power plants are taking longer than the prescribed amount of time to unload coal from railway racks. 
  • The greater the delay in power companies unloading coal, the lengthier the turn-around time.

High Coal Prices and India’s Power Sector

• Demand supply gap: 
  • Indian power producers and discoms are facing high international coal prices, while domestic coal supply has already been struggling to meet demand in the past six months. 
• Consequential power cuts: 
  • High demand for domestic coal amid high international prices had led to rolling power cuts in a number of states in October 2021 as several thermal power plants ran out of coal stock.
• Import dependency increased:
  • Given the continued tight domestic coal supply position over the last six-month period, coal import dependency for the power sector is expected to increase moderately in the near term.
• Cost increase:
  • Higher dependence on expensive imported coal would increase costs for independent power producers and discoms that are not able to pass on the increased cost of fuel to consumers.
  • The incremental impact on cost of power supply for the discoms on an all India basis is thus estimated at about 18 paise/unit reflecting a retail tariff impact of 2.6 per cent.

Other issues

• Unfair  Coal Block Allocation:
  • The Coal Mines (Nationalisation) Act 1973 does not allow private companies to mine coal for sale to third parties, though captive mining is allowed for specified end-use sectors. 
  • There are political sensitivities in opening up the coal sector to private investment, but it is simply not logical to keep private investment out of coal when it is allowed in petroleum and Natural gas. 
  • There is a demand to amend the Coal Mines Act 1973. 
• Underground Mining:
  • Only 15% of India’s coal production is from underground mines. 
  • The industry aims to reach a total coal production of 30% from underground mines by 2030.
  • Considering emerging hurdles in forest clearance and land acquisition in future, serious efforts need to be made to increase the share of underground production by focussing on longwall technology and productivity in underground mines.
• Coal Regulation and Pricing:
  • India has the fifth-largest coal reserves in the world. 
  • There are huge power expansions plans, which need to be fueled by coal. 
  • However, there has been no coal regulator. 
  • The idea of a Coal Regulatory Authority was mooted in 2008, but it could not be established for unknown reasons. 

Way Ahead

• Review Proposals: 
  • India needs to watch out for new coal power plant proposals of 27 gigawatts (GWs) of capacity that could potentially become superfluous to the overall country electricity requirements by 2030.
• Coal Capacity: 
  • India doesn’t require new coal capacity beyond the 33 GW of new coal plants already being built, to meet demand growth by FY 2030.
  • Even with a 5% annual growth in power demand projection, the analysis shows that coal-fired generation in FY 2030 will be lower than in FY 2020, as India achieves its 450 GW RE and other non-coal targets.
• Switching investment from coal projects to renewables and battery storage:
  • The analysis reveals that switching investment from coal projects to renewables and battery storage would save the Indian power system an additional Rs. 43,219 crores a year from 2027 onwards in terms of reduced power purchase cost, in addition to Capex savings, without sacrificing the power system’s ability to meet future demand.
  • The smart option is to divert these resources to renewables and storage to build a cheaper, more resilient grid for the future.

Source: IE