Running short of coal, is India on the verge of an energy crisis?

Most of India’s power plants run on coal, but now the world’s second-largest population is without enough reserves to supply its power stations, which generate nearly 70 percent of the country’s electricity. 

The crisis is surprising for a country like India, which is the second largest producer of coal after China, and 45 percent of the South Asian country’s energy demand is met by coal. 

India imports a lot of coal to meet its huge demand, being the second biggest importer of the cheap energy source. But after a deadly second wave of the pandemic, Indian consumption of electricity has sharply increased as global prices for coal also jumped by 40 percent, creating havoc for New Delhi, whose coal imports recently decreased. 

It’s an alarming development for Asia’s third-largest economy, where nearly half of its 135 coal-operated power plants have only two days of coal supplies, and at least 17 of its power stations have already leveled to zero of their supplies, according to India's Central Electricity Authority (CEA). 

Other plants’ coal supplies are also running close to “super critical” levels, the CEA report said, indicating that the country might face an energy crisis if enough supplies do not arrive soon. 

“I can’t say I am secure… If you have 40,000-50,000 MW (of thermal capacity) with less than three days of stock, you can’t be secure,” said R.K. Singh, Union Power Minister in the government of India. 

As covid restrictions ease across India, people have begun buying more commodities like TV sets and air conditioning machines, which has increased electricity demand. 

While Singh appeared optimistic that India would be able to sort out the issue, he still finds the current lack of enough electricity generation beyond “normal”.  

Why India is short of coal

In addition to increasing coal prices and decreasing Indian imports of coal, rising demand of electricity in the post-pandemic commodity market, and growing world public opinion which disfavours coal mining due to its negative environmental effects, appear to be some of the reasons behind India’s coal shortage. 

But there are also other reasons, experts say. One is related to South Asia’s monsoon season, which records heavy rainfall from June to August every year, limiting coal mining and its transportation across the country. 

“They shut down their mining operations during this rain season,” says Shreya Jai, a New Delhi-based Indian journalist. In September, India continued to receive a lot of rain, keeping the country’s mining industry largely shut, Jai tells TRT World. 

There were also stocking up issues, she says. Power generation companies were asked by state-run coal mining corporation Coal India to stock up coal in advance so as not to face any shortages, she says. But in recent months, most power units and states did not stock up on coal, which also led to shortage of coal across the country in a time when coal supply was “scarce”, she says.

Another crucial reason is related to payment issues, according to Jai. In August, four large Indian states with the biggest coal consumption defaulted on their dues to Coal India, which is the world’s largest coal-producing company. Coal India is also a regulating force for coal prices. 

Jai also draws attention to the fact that while much of India’s coal production, around 80 to 85 percent, has a domestic origin, the country also imports coal. But when coal prices soared, imports were stalled, creating “an additional pressure” over the domestic coal-based power units, she says.

How shortages could affect Indian economy

In order to prevent electricity shortages, the Narendra Modi government might encourage power plants to increase production, but that kind of measure might result in more problems than solutions, forcing "power sector companies to face the prospect of importing coal at significant cost," according to experts.

"If I am [as a company] importing expensive coal, I will raise my prices, right? Businesses at the end of the day pass on these costs to consumers, so there is an inflationary impact - both direct and indirect - that could potentially come from this," said Aurodeep Nandi, an Indian economist and Vice President at Nomura, a global financial services group.

Across India, prices from commodities to oil have already increased and if energy prices soared, that would also have a negative impact on inflation. The situation is dire enough to be considered “worrying” by some top officials, according to the BBC. 

Like other countries, in India, electricity keeps many industries from cement, steel to construction, operational. As a result, a shortage of coal will have a massive impact on various sectors of the country.