China is not the only Asian economy currently in short supply

Wednesday, October 6, 2021 Electric Pins and chimneys at the Tata power plant at Tata Power in Mumbai, India.

Diraj Singh | Bloomberg | Getty Images

China is not the only Asian giant struggling with the energy crisis – India is also on the brink of a power crisis.

Coal reserves are very low at a time when most of India’s coal-fired power plants are concentrating and fueling electricity demand.

Coal accounts for about 70% of India’s electricity generation.

According to Indian General Economist Soul General Kunal Kundu, the energy crisis in the Renaissance, which is driven by industrial activity rather than service, could have a immediate impact.

According to government data, as of October 6, 80% of India’s 135 coal-fired power plants had less than eight days of supply: more than half of them had shares worth two days or less.

In comparison, the average coal reserves of power plants over the past four years have been worth 18 days, said Hatal Gandhi, research director at S&P Global, a subsidiary of CRISIL.

Read more about pure power from CNBC Pro

How did we get here?

Analysts told CNBC that a combination of supply factors and the importation of coal has led to the current crisis.

India raised energy demand between April and August. It comes after the second wave of the CV-19, which revived the economy.

According to Gandhi, economic recovery was more than expected.

The heat companies had a basket of coal and did not expect to increase energy demand this year, Gandhi said.

Other sources of electricity – such as hydropower, gas and nuclear – have also declined.

Gandhi attributed the unbalanced winter. Low rainfall in some areas has negatively affected the production of hydroelectric power.

Other reasons include a sharp rise in gas prices and a shutdown of nuclear power plants. All of this has led to increased coal production.

Although there is plenty of coal in India, logistical issues also limit the supply of coal due to the rainy season, Sandend Kalia, a senior McKenzie analyst at Woodenzi, told CNBC.

A borehole refers to the top of a mine where most coal is stored before being transported to power companies. During the rainy season, many roads are flooded, making it more difficult to travel.

Why does the supply of coal end?

Although India has the largest coal reserves, it is the third largest importer of coal in the world. However, the widening gap between international coal prices and domestic coal prices has seen a sharp decline in imports in recent months.

As supply declined, demand increased.

Releasing coal from power plants decreased by 45% compared to the same period last year in July and August, while non-energy sectors in India became more dependent on domestic coal. Powerless industries, such as aluminum, steel, cement, and paper, burn a lot of coal to produce heat.

He added that the decline in electricity generation from offshore coal-fired power plants has added to the pressure on domestic coal-fired power plants.

Even then, the importation of coal was disrupted due to the epidemic and logistical issues, according to CRISIL Gandhi. For example, transportation costs are rising due to high demand Shipping and congestion at ports as the world economy gradually recovers from the epidemic.

India’s domestic coal is also a low cost of heating – which means more demand is needed to replace imported coal, thus putting more pressure on domestic power plants, he said.

Coal prices in India are largely determined by state-owned coal India. Therefore, domestic prices will not increase significantly because global prices will affect energy prices and inflation – consumer companies will not be able to transfer high costs to most consumers.

With energy subsidies for most farmers and many households in India, the burden of high coal prices falls mainly on industrial consumers with between 25% and 30% of energy consumption, Gandhi said.

As import prices rise sharply, the incentive for local producers to import coal and energy production is at the bottom.

What can happen next?

Indian Energy Minister Raj Kumar Singh has been warned that power outages could last up to six months.

During this holiday season, India’s demand for energy is likely to increase further – and if India’s international demand for international demand rises, the situation could worsen. Coal India, for its part, is said to have strengthened supplies to address some of the shortcomings.

Gandhi said: “If the demand is high, I don’t know what the steps will be, but you can look at measures that could impose restrictions on exports in the energy-intensive sectors.”

Indian authorities want to allay fears of supply shortages.

The coal ministry said the country had enough coal to meet its energy needs and that the threat of power outages was “baseless” and “wrong.”

Coal found in power stations is a daily supply of coal from coal companies. Therefore, any fear of decreasing coal reserves at the end of the power plant is a mistake. In fact, this year the domestic supply of coal has been replaced by imports.

“As India is heavily dependent on thermal energy, we can see domestic coal suppliers shifting their supply to heat stations such as steel, cement, etc.,” Socialist General Kundu told the NBC. Either way, there are short-term teeth in motion.

“There is a possibility that the price of electricity will go up as inflation will fuel inflation,” he said.

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