India’s Chronic Coal Shortages Threaten Coal Power Ambitions

India has been besieged by a coal shortage of unprecedented severity that has forced privately owned and money-strapped state-owned coal-fired power plants alike to rely on expensive imports from Indonesia and South Africa to replenish woefully inadequate stocks.

The situation, which intensified last October, was said to stem from heavy rainfall in August and September in key mining areas that affected six of seven subsidiaries belonging to Coal India, the central government–controlled mining company, and caused a shortfall of 17 million metric tons of coal. The scarcity—already severe for the nation, which sources 55% of its power from coal generation—was further exacerbated by strikes by Coal India employees, a derailment of a big consignment of coal, and floods in eastern states.

The fuel shortages have frozen plans for $36 billion of new power plants and stunted India’s $1.7 trillion economy. In late February, India’s Power Ministry told the Planning Commission that the nation’s coal availability during the 12th Plan period (2012–2017) was suggestive of a “very bleak” scenario and that the shortages raised questions about achieving the targeted 9% economic growth for the period.

Coal India production over the period was projected at 615 million metric tons—way below the 12th plan requirement of 842 million metric tons, the ministry said. That much coal would only support about 19,000 MW of Coal India–linked new capacity during the five-year period, half as much as the 38,000 MW required to sustain economic growth. For those reasons, the ministry urged the commission to pare down its total generation capacity targets for the period from 76,000 MW to 57,000 MW. India’s total capacity addition ambitions of 76,000 MW during the 12th Plan consisted of 62,695-MW coal capacity, 2,800 MW of nuclear power, 9,200 MW of hydropower, and 1,086 of gas-fired power.

And it’s just the beginning of a downward spiral, some experts suggest, saying that the deficit between the demand and supply of domestic coal in India may rise as high as 150 million metric tons by 2014 if the country fails to increase local supplies by at least 6% this year.

State-run power generation companies from Maharashtra, Karnataka, Andhra Pradesh, and Tamil Nadu—entities that rely on Coal India for adequate supply—have already begun depending on expensive imports, while private generators such as Tata Power (Figure 7) and Adani Power have substantially increased coal imports, reported India’s Financial Chronicle in late February.

7. Dealing with the dearth. India has been stricken by a severe coal shortage that has forced state-run generators and private companies to import coal—circumstances that could compel the country to scale down its new coal capacity targets. Despite being built to overcome chronic power shortages that are stunting economic growth, newly opened plants like Tata’s 1,050-MW Maithon Right Bank Thermal Power Plant in Jharkhand aren’t receiving enough coal to reach full capacity. Courtesy: Tata Power

But some analysts assert that India’s plan was doomed from the start. Even with the shortages from last summer, Coal India reported only a 2.7% drop in production to 291.2 million metric tons in the nine months leading up to Dec. 31, according to a Feb. 13 statement. Meanwhile, a recent report by Standard Chartered Bank suggests that even if India received 60% of the coal it needs from its own mines, it would still need 106 million metric tons of coal capacity within the next five years—double Australia’s planned expansion and two-thirds of Indonesia’s. That is one reason Indian companies are scrambling to secure coal resources, buying coal projects in Indonesia, Australia, and Mozambique, it said. Moreover, if a 10% growth in generation capacity were assumed, imports would have to grow by a stunning 125% to 164 million metric tons by 2015—a development that could ultimately cause coal prices to surge beyond $200/metric ton.

Meanwhile, India must compete with coal-hungry developing nations like China for fuel. India is already poised to surpass China as the world’s biggest thermal coal importer, according to The Financial Express, which reported that India’s imports could exceed 118 million metric tons this year—substantially more than last year’s 81.1 million metric ton imports of steam coal, and much higher than China’s imports of 102 million metric tons this year. One reason for this, experts note, is that China is developing twice as much coal-production capacity this year as in 2011. At the same time, India’s government may force Coal India to begin imports en masse by imposing penalties on power producers should deliveries fall to less than 80% of the contracted quantity.

—Sonal Patel is POWER’s senior writer.