Rising dependence on thermal power, coal security more crucial than ever

With the new power generation projects being announced and new capacities being added, the electricity deficit in the country was expected to come down. However, the compilation of data from the website of the Central Electricity Authority indicates that peak deficit has sustained over 10% for several years now. In our data, for the purpose of uniformity, we have taken data for one specific month, i.e. the month of Jan from 2005-2011. We have also considered peak demand and peak supply, which is the best measure of performance.

In our analysis, we found that in the last 3 months of the year 2011, the deficit between peak demand and supply had increased. In fact, last month (Nov 2011), this deficit reached the Jan 2011 levels, i.e. 12.5%. The reason behind this is the severe Coal Shortage caused due to the floods in North India as well as the SCCL crisis. From the beginning of the year till Nov 2011, the peak demand has increased by 4% while peak supply has increased just by 1%, earmarking the need for sustained coal supply for the power projects over a long period.

In fact, since Jan 2005, India’s installed capacity has increased by ~60%, but the peak supply has increased by just 44%. Even though the peak demand has increased by the same rate as the peak supply, i.e. 44% during the same period, the peak deficit has remained in double digits. Not to mention that load shading has become very common in many parts of the country.

2011 is the last year of the 5 year plan that augmented the large capacity additions. However, not all the capacities have gone onstream as yet. Many of the UMPPs (Ultra Mega Power Plants) are either in implementation mode or are yet to be commissioned. During this period, the domestic coal demand has increased following aggressive thermal capacity additions. Coal prices have moved to uncomfortable levels in the international markets, making it difficult for the generating companies to buy more coal to keep the capacities running.

The govt’s emphasis on power generation has largely remained on increasing thermal capacities. In 2005, thermal capabilities contributed about 58% of the total capacity. By Nov 2011, this contribution increased to 66%, not to mention that 4 UMPPs under implementation are yet to add 16000 MW capacity. This increased dependence on thermal capacities will be a worrying factor for the power sector, with the primary issue of coal security yet unresolved. Other problems like under-recoveries and low tariffs will come in later, when the projects go onstream.

With the govt. rushing to add 75,785 MW in the next Five Year Plan, we believe that coal security will play a crucial role in the growth of the sector. We, at DSIJ, are also of the opinion that more companies will raise funds for the new capacity expansions. Investors who are interested in the power sector must see the coal security of the firm when they are investing.