Home >Markets >Mark To Market >How fuel availability at power plants moved from scarcity to sufficiency

When coal inventory at thermal power plants dropped to critically low levels last October, spot electricity rates climbed to record levels of 6 per unit.

Prices in the spot electricity market have since dropped to unusually low levels, touching 1 per unit this week. Average prices in May, the peak summer month, were 44% less than the average prices last October.

The fall coincides with the moderation in coal prices in international markets. Besides, the price reduction is made possible by the improvement in fuel inventory levels at thermal power plants.

As the accompanying chart shows, coal availability at thermal power plants improved from 10 million tonnes (mt) in October 2018 to 29 mt as on 3 June. This is sufficient to run thermal power plants monitored by the Central Electricity Authority (CEA) for 16 days. Last October, when prices surged in the spot markets, these plants had only six days of fuel in stock.

The availability is still lower than CEA’s target of 22 days. Even so, the improvement is remarkable. Before the onset of the summer, the plants had 31 mt of coal or 18 days of fuel in March.

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A scale-up of imports and diversion of more domestic coal to the power sector helped increase fuel availability. Coal stock from imports and local supplies have both risen to about three times the levels of October.

This places the sector well for the forthcoming monsoon season, when coal production usually slows due to rains. The inventory levels as of June are highest in two years. This and low utilization levels of thermal plants should keep the power prices in the spot electricity markets in check unless there is major disruption in coal production and supplies.

The improvement in fuel supplies should also bode well for regulated power utilities such as NTPC Ltd. To recap, the company was unable to fully recover its fixed costs in FY19 due to insufficient availability of domestic coal. While the loss in revenue reduced towards the end of last fiscal year, the continuing improvement in fuel supplies should further lower the cost under-recovery this year.

But the sharp reduction in spot electricity prices and continued sluggishness in thermal power plant utilization levels also hold a cautionary message.

The record low electricity prices in spot markets and slow improvement in thermal power plant utilization underscores subdued demand, especially from the industrial sector. Thermal power production is up just 1.8% so far this fiscal year. Besides, the growing usage of imported coal pushes up the cost of production.

It’s only when power companies report financial results that we’ll know how much of a boon better fuel availability has proved to be for them.

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