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Weak Monsoon Adds to India's Coal-Fired Power Dominance



September 11, 2023 - Weak monsoon rainfall in India has dented the country's hydropower generation over the past few months, exacerbating coal-fired generation and prompting authorities to call for higher coal imports by utilities to meet the surge in power demand.

The June-September monsoon season is expected to be below normal, especially after rainfall in August was deficient at 64pc of the long-term average, Indian credit rating agency Icra said in a research note. The rainfall has been subdued as the El Nino set in with the dry weather phenomenon expected to cap hydropower output, leading to an increase in coal-fired generation to cater to increased power demand.

The country's hydroelectric generation eased to 21.93TWh in August from 23.40TWh a year earlier, according to data from the Central Electricity Authority (CEA). Hydropower output in the first five months of India's April 2023-March 2024 fiscal year slipped to 74.37TWh from 81.24TWh a year earlier. Coal-fired generation rose to 103.94TWh last month from 88.31TWh a year earlier, while during April-August it rose to 517.54TWh from 485.52TWh the previous year. Coal-fired power generation accounted for 75.6pc of India's generation mix in August, higher from 72.68pc from a year earlier.

The maximum temperature last month rose on average across the country with the weaker seasonal rainfall, lifting overall electricity consumption. Indian power demand also increased on higher economic activity after the country's GDP expanded by 7.8pc for the April-June quarter from a year earlier. The patchy rainfall also meant that construction and infrastructure activity faced milder than usual seasonal disruptions. Demand for cement and sponge iron products remained firm, supporting industrial coal demand for domestic and imported coal cargoes.

Indian authorities have been proactive this year to ensure stable power generation to meet any spike in electricity consumption, led in part by the expansion in the country's economy. This aimed to avoid what happened in the summer of 2022 when a post-Covid-19 pandemic demand surge and a severe heatwave brought the country to the brink of a power crisis.

India's power ministry has extended the validity of its earlier directives to utilities to raise coal imports and boost power generation to meet an anticipated increase in electricity consumption. Power demand hovered above 200GW over most of August, higher than the trend a year earlier. But increased coal supplies to utilities failed to match the rise in demand, the ministry said. The decision to seek higher imports by utilities could support India's overall receipts of seaborne coal in the coming months, after imports fell by 7.04mn t from a year earlier to 11.51mn t in July, according to shipbroker Interocean's data.

Demand from India in the seaborne market has been steady lately, driven by firmer interest from utilities, industrial consumers such as cement producers and stock and sale trading firms, especially at a time when international coal prices are soft. Argus last assessed the Indonesian GAR 4,200 kcal/kg market at $50.14/t fob Kalimantan on 31 August, the lowest since April 2021 and nearly 45pc lower from the start of the year.

Infrastructure Issues

The CEA estimated utilities' domestic coal requirements at about 404mn t in October-March but coal supplies have been factored in at 397mn t, citing various logistical constraints associated with the rail network and the availability of rakes to move coal cargoes. The ministry of railways is making progress in resolving infrastructural issues but there are some bottlenecks which may take some more time to resolve, the power ministry said.

India's coal ministry has partnered with the railway ministry to build 67 first-mile connectivity projects, to boost rail infrastructure around coal mines and help transport the coal. IndianRailways is also looking to increase the number of rakes for transporting coal to utilities. A lack of rakes to ferry coal and inefficient transportation infrastructure in mining regions has weighed on India's plans to rapidly raise coal output. State-controlled coal producer Coal India also aims to modernise its coal transportation system and is working on plans to build a key railway corridor in a joint venture with Indian Railways.