Unless Coal India Ltd keeps up the supply momentum, the current coal inventory could soon disappear at thermal power plants. (Vipul Sharma/Mint)
Unless Coal India Ltd keeps up the supply momentum, the current coal inventory could soon disappear at thermal power plants. (Vipul Sharma/Mint)

Coal stock rises at thermal power plants, but will it be enough?

  •  Coal stocks at 126 thermal power plants rose for a fourth successive month in February to 26 million tonnes, says Elara Capital
  • Rise in coal inventory, however, coincides with a slump in power demand—electricity generation in Jan-Feb declined 0.9%

Coal inventory has been on the rise at thermal power plants. This improved from six days of consumption equivalent in October 2018 to 16 days in February 2019. As on 18 March 2019, it had inched up to 17 days, shows data from the Central Electricity Authority (CEA).

The recovery is notable, despite the inventory being lower than the normal requirement of 22 days. At present, no thermal power plant faces critically low coal stock levels of less than seven days. This compares well with nine plants facing low coal stocks as on end-December 2018.

Coal stocks at 126 thermal power plants rose for a fourth successive month in February to 26 million tonnes, says Elara Capital (India) Pvt. Ltd.

However, the rise in coal inventories coincides with a demand slowdown. Electricity generation in the first two months of this calendar year declined 0.9%, reflecting prolonged winters and subdued demand.

Volumes on the Indian Energy Exchange (IEX), which primarily deals in short-term power contracts, dropped 15% in February. Shrinking demand from northern and western states weighed on volumes, according to IEX.

Also, the last two months have seen a reduction in conventional capacities. In February 2019, a 100 megawatt (MW) sequential dip in coal- and lignite-based power capacities has been seen.

These factors reduced fuel consumption, raising coal inventories. Besides, a rise in coal imports and better fuel quality supplied to the power sector has led to greater efficiencies. This may also have contributed to the improved inventory situation, says an analyst.

Nevertheless, unless Coal India Ltd keeps up the supply momentum, the current inventory could soon disappear. Further, as governments at both the state level and at the centre try to reduce load-shedding during the general election, demand could rise substantially in the coming months. There are indications that demand would continue to grow steadily, helped by more supplies and greater connectivity.

The demand for long-term power contracts are emerging after a four- to five-year hiatus, says Motilal Oswal Securities Ltd. A Gujarat power distribution firm has invited bids for procurement of 3,000MW on a long-term basis. As states continue to clinch ongoing short-term power contracts, coal requirements will increase, testing the present inventory levels.

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