Adverse weather has already hampered coal supplies, worsening the power crisis. The nation has been witnessing shortages of its most dominant fuel since at least August, as demand surges with the economy emerging from the pandemic, while rains have hindered production and supplies.
The supply tightness of coal, which helps produce about 70% of India’s electricity, can potentially raise energy costs for some customers, while leaving some others starved of supplies. That can harm the nation’s nascent economic recovery and exacerbate pains inflicted by already high prices of petroleum fuels and other commodities.
The forecast for more rain comes after Coal India Ltd., the nation’s biggest producer of coal, said it planned to accelerate output and shipments from this week to replenish depleted reserves of the fuel at power plants and resume supplies to industrial customers that were temporarily halted last week.
The average spot power price at the Indian Energy Exchange Ltd. fell to 3.76 rupees a kilowatt hour on Monday, down 77% from a week earlier when it touched a 12-year peak, an indication that supply is beginning to match demand.
“The situation seems to be improving and one can only hope that rains don’t spoil it," said Rupesh Sankhe, vice president at Elara Capital India Pvt. in Mumbai. “Coal India will need to start ramping up production wherever it can to be prepared for any prolonged rains."
While rains pose a risk to coal supplies, it carries some benefits. The cooling weather brings down the demand for power and boosts hydropower generation by filling up the reservoirs.