Nation's problem with coal sector continues: Bridge to India

Moneycontrol BureauIn January 2017, India’s coal imports declined by 22 percent to 14 million tonnes because of lukewarm demand from power generating stations. Coal India Limited, which accounts for 80 percent of domestic coal production, has posted its worst ever financial results for H1-FY17 as revenues declined even as expenses rose. At the same time, plant load factor (PLF) of thermal power stations continues to be near all-time lows of under 60 percent."This is all a big change from just three years ago, when coal availability was the main constraint for India’s growing power generation capacity. The reason for this reversal: while both power generation capacity and coal production have grown significantly, demand growth for power has failed to keep up," market research firm Bridge to India reports.But power demand from more than 300 million people unconnected to or unserved by the grid is failing to materialize despite the Indian government’s aggressive electrification policy – aim to achieve 100 percent electrification by 2018 – and UDAY reform package for DISCOMs, the report says.

Politics continues to dictate power pricing.

Just last week, the Government of Rajasthan decided to roll back a marginal but much-needed hike in electricity prices for agricultural consumers who pay a measly tariff of Rs 0.90 (US¢ 1.3)/ kWh, significantly below the cost of supply.

"Elsewhere, UDAY stipulated tariff hikes are not happening and, in fact, difference between the average cost of supply and average revenue realized has widened in Haryana, Madhya Pradesh, Punjab, Karnataka, Jharkhand, Bihar and Uttarakhand. Understandably, DISCOMs prefer to not supply power to loss-making consumers providing none-too-optimistic scenario for power demand." "Despite weak demand growth, the National Electricity Plan, December 2016 shows that around 50 GW of additional thermal capacity is under various stages of construction. Private investors in coal mines and thermal power generation projects will face the brunt if demand doesn’t pick up. In absence of demand growth, record low tariffs and ‘must run’ status of solar plants are likely to hurt sentiment for thermal power sector very badly," says Vinay Rustagi, MD, Bridge to India. "We noted in our recent blog on Rewa solar project that falling cost provides a huge demand pull for solar power, which has suddenly become very desirable. But it is not all good news. Excess thermal capacity, poor financial condition of DISCOMs and low demand are also expected to hurt growth prospects for solar power in the long run," he said.