Lower growth in India's domestic production vis-a-vis demand, poor quality of domestic coal, and inadequate availability of domestic coking coal have resulted in India's coal imports increasing at a 5-year CAGR of 16.2 per cent to 101 mt in FY2012. Power Today delineats future prospects.
The government's resort to pooling the prices of imported and domestic coal has become eminent as the country cannot afford to keep thermal power plants stranded, mainly dependent on imported coal. According to industry experts and analysts, for the larger interest of the economy in India, there is no option left except 'costly power or no power'. Tata Power's Coastal Gujarat Power Ltd and Adani Power's projects among others have already sought tariff hike in the wake of high imported coal prices.
It also becomes important as the capacity addition in power generation is undisputedly a major concern. At a time when domestic production is falling short, dependency on imported coal becomes a compulsion to meet the FSA commitments by Coal India. Coal price volatility and higher price of imported coal have driven the power producers to seek price pooling of imported coal with domestic coal. The government, as per recent media reports, have taken an in principle decision in its favour. Analysts believe that the government has to seek options unless there is enough domestic coal production, which is not possible in near terms. "As of today government has no option but to rely on imported coal and to rescue power companies coal price mechanism has to be worked out," said Kuljit Singh, partner - power & infrastructure, at Ernst & Young, a global consultancy. This may result into further power tariff hike as the cost increase would have to be pass over the discoms and from them to end consumers.
Meanwhile, increasing demand of coal in coal based power plants in India is estimated to grow 7 per cent annually. According to ICRA Management Consulting Services (IMaCS), the demand-supply gap could rise up to 266 mt by FY2017.
The import could comprise of 35.5 mt of coking coal and 230 mt of thermal coal. Import demand would be primarily be accounted for by power utilities (190 mt), and steel (36 mt). "Although India's coal needs will continue to be largely met domestically, the share of imports in domestic demand is forecast to increase to 27 per cent in FY2017," said Vineet Nigam, DGM at IMaCS
Lower growth in India's domestic production vis-a-vis demand, lower quality of domestic coal, and inadequate availability of domestic coking coal have resulted in India's coal imports increasing at a 5-year CAGR of 16.2 per cent to 101 mt in FY2012. Imports accounted for around 16 per cent of domestic consumption in FY2012, as compared with 7.1per cent in FY2003. India's coal demand has increased at a 5-year CAGR of 6.5 per cent to 635 mt in FY2012. Demand is dominated by the power sector, which accounts for 70-72 per cent of total demand. Including steel (11 per cent) and cement (5 per cent), three industries account for 87 per cent of India's coal demand.
Coal based plants account for around 55-57 per cent of India's electricity generation capacity, however, their share in power generation has been higher at 67 per cent. India's coal demand is forecast to increase at an annual rate of 7 per cent to 981 mt by FY2017, according to IMaCS. Out of the forecast demand, demand by power utilities is forecast at 682 mt (5-year CAGR of 8 per cent), accounting for 70 per cent of forecast demand. Including forecast demand of 56 mt by captive power plants (CPP), the projected demand for power sector is around 75 per cent of total demand. Demand by the steel sector is forecast at 67 mt (5-year CAGR of 8 per cent), accounting for 7 per cent of total demand.
India's coal production has increased at a five-year compound average growth rate (CAGR) of 4.6 per cent to 540 million tonnes (mt) in FY2012. Over the last few years, the increase in production has come almost entirely from non-coking coal. Production of coking coal has increased at a low rate mainly because of lower production by Coal India Limited (CIL).
Rising prices has ensured improved financials for CIL during FY2010-12. Although competition from alternate suppliers and imports is likely to increase considerably over the medium-term, the dominant position of CIL is unlikely to be impacted. Consistently increasing demand-supply gap, increased production, steady reduction in workforce, and productivity improvement measures are the factors which may have a positive impact on CIL's profitability on a consolidated basis. However, performance variations across subsidiaries may continue.
India's energy supply and demand is likely to be dominated by coal for many decades to come, primarily because of its lower costs and abundant availability. Compared with limited oil and gas reserves, India's coal resources and reserves are enormous. As a result, even under a wide range of scenarios, coal is expected to contribute between 44 per cent and 51 per cent of India's energy supply by 2035, compared with 42 per cent in 2010. Coal is expected to continue to be the main source of electricity generation, with its share increasing from 68 per cent in 2010 to 68.6 per cent in 2035. Coal is expected to remain India's most competitive fuel choice for power generation over the next 2-3 decades. In the industry, coal is expected to be primarily used in steel and cement production, and is expected to be the main fuel used. Although world demand prospects for coal could increasingly be dependent on climate change policies, such factors could have less influence in developing countries such as India, which could place a higher value on economic growth and security of energy supply than on environmental objectives. Because of the long life of coal-fired power plants, and the higher cost of building advanced plants, alternate infrastructure will come into operation only very gradually.
• Increasing demand of coal in coal based power plants in India is estimated to grow 7 per cent annually to lead a demand-supply gap of 266 mt in FY2017.
• India's coal needs will continue to be largely met domestically, the share of imports in domestic demand is forecast to increase to 27 per cent in FY2017.
• Rising prices has ensured improved financials for CIL during FY2010-12. Although competition from alternate suppliers and imports is likely to increase considerably over the medium-term, the dominant position of CIL is unlikely to be impacted.