India is the second largest producer, consumer and importer of Coal. Nearly 72% of the domestic electricity is produced by using coal as the input. The dependence on imported coal is rising in recent years indicating higher gap between domestic consumption and production of coal.
Higher coal price and the resultant electricity shortages are not just an Indian scenario. China is also suffering from massive shutdowns in the industrial sector due to coal shortages. Both producing more than three thirds of their electricity using coal.
|Coal reserves in India||Total estimated reserves of coal in 2020 were 344.02 billion tonnes and India has the fourth largest coal reserves in the world.|
|Coal production in India||Coal production in the country was 730.87 million tonne during 2019-20(P) compared to 728.72 million tonnes for 2018-19. During this period, there was a steady increase with a CAGR of 3.58%.|
|Import dependence||There has been an increasing trend in the net import of coal in recent years. Net Import of coal steadily increased from 67.04 MTs in 2010-11 to 248 MTs in 2019-20 and it came down to 215 MTs in 2020-21.|
|Coal availability (production + imports)||The total availability of Coal in 2019-20(P) was 1002.15 MTs compared to 958.25 MTs in 2018-19. Out of the 1002.15 MT available for consumption in 2019-20(P), nearly 73% is produced domestically, and the remaining 27% (248.54 MTs) was met through imports.|
|Coal for electricity||Coal was the major source of energy, accounting for about 72.22% of the total production during 2019-20.|
|Source: Energy Statistics India 2021, MOSPI|
The coal crisis –
At present India’s coal power plants have a reserve to meet 3-4 days’ needs, against the recommended level of reserves for 15-30 days. Several states are warning about future blackouts.
Import dependence: Coal and coke imports during 2020-21 was 215.92 million tones and it was 12.6 per cent lower than 248 MTs imported during the previous year.
Reasons for the current coal shortage
The current coal shortage is an instance for supply demand mismatches with coal supply disruptions and higher demand from economic recovery. In big economies like China and India, coal is the main input for producing electricity. The main factors for the coal shortage are:
- Sharp increase in demand as the economy recovered from the pandemic. Power companies have not anticipated the sudden increased demand from economic recovery.
- Slow production in other electricity sources: production from hydro, nuclear and gas-based plants not increased with economic recovery. So, there occurred stress on coal-based plants to increase production.
- Steep increase in the international prices of coal due to shortage of production in China. China has cut the share of coal-based electricity from over 80% in 2017 to 56% in 202.
- Supply disruptions due to flooding of some coal mines.
- Decarbonisation efforts internationally and nationally have significant bearing on coal production, prices, trade and consumption.
The current coal shortage, price rise and blackouts in some regions may continue in the medium term upto six months. With world’s fourth largest coal reserves, India can manage the crisis with a group of strategies but only over the next few quarters.
Since there is high dependence on thermal power, some portion of the domestic coal supplies to industries like steel, cement etc will be diverted to thermal power plants to manage demand and production. Coal India Limited has temporarily stopped supplying non-power users. It had stopped all online auctions of coal except for the power sector.
Electricity price also may go up with increased dependence on imported coal that comes with higher cost.
Higher electricity prices may add to the current inflationary pressure.