India Inc unscathed for now, but power prospects hinge on coal availability

Regulated coal supplies to non-power sectors and allowing participation of captive miners amid an increase in production by the key supplier – Coal India – may help corporate India avoid what appeared to be a major power crisis in the making until recently, but the threat still looms when power demand picks up from here.

To recall, a surge in power demand amid rapidly dwindling coal inventories, higher prices of imported coal, delayed payments to power producers, long dry spells impacting hydro power generation, and maintenance shutdowns at nuclear plants has had a domino effect on the sector in recent months. Storms in some coal mining belts have impacted supply further, worsening the situation.

Coal stocks are unlikely to improve to the previous level of 15-18 days inventory anytime soon. Also, availability of rakes and a pick-up in power demand in March-May will be the key monitorables from here.

Power demand has recovered sharply, peak demand sharper

In the five years through September, growth in India’s monthly power demand averaged 4%, though it did exceed 12% in a few months of fiscal 2020.

In recent past, power demand has surged again. Base demand has clocked 13% growth year-to-date. Volatility in base demand has also risen sharply over the past two years. Peak demand growth has been higher at nearly 15%, while volatility has spiked here, too.

CRISIL Research estimates overall growth in power demand for the current fiscal at close to 7%.

Over the next three months, given the criticality of the current coal crisis, average demand would be lower than in the past few months, an analysis of five-year data trends shows. While this may offer temporary respite, the real monitorable for power availability would be the March-May period when temperatures begin to soar. Therefore, a build-up in coal inventories before end-February is crucial.