Moneycontrol Pro Panorama | India’s war-proof sector comes into focus

India’s power sector is comfortably placed.

Dear Reader,

Self-sustainability has many advantages. In the backdrop of war in the Middle East and rising energy prices, India’s power sector is comfortably placed.

The power sector procures most of its fuel (largely coal) from the domestic market, insulating it from the current Iran war-led price shock and supply disruption. Comparatively, the dependence on imported fuels for Asia Pacific peers such as South Korea, Vietnam, Thailand and China is relatively higher, exposing them to cost and earnings pressures.

“Utilities and generators in India, Indonesia and Australia are less affected by supply risk because most generation fuel -- coal and natural gas -- is sourced domestically, and reliance on crude oil is negligible (for power generation),” Fitch Ratings said in an update.

Of course, this is not to say domestic companies have nothing to lose or gain from the current war in Middle East. In fact, gas prices are rising and supply to industry is being cut. This can crimp production and lead to economic costs.

On the other hand, the price of coal used in power generation is rising in global markets. High gas prices tend to drive up coal usage in power generation. This can have a positive rub-off effect on local producers such as Coal India. While supplying a large portion of its output to power utilities, Coal India also sells certain quantities in market price linked e-auctions.

“If oil prices rise with supply constraints, we expect prices of coal in the international market to follow suit, mainly due to the role of substitution, albeit with a little lag,” analysts at JM Financial said in a note.

Rising international prices can improve auction rates and realisations for Coal India. Not surprisingly its shares are up 4 percent so far this week.

Incidentally, the government is also trying to replace a sizeable quantity of imported coal used by power plants with locally produced coal, reports Reuters and discussed in our Chart of the Day.

If more users turn to domestic coal, then the near-term existential risks feared for Coal India due to energy transition can be brushed aside for now. Note that India is also planning to add about 30,000 megawatts of coal-based power generation capacities in FY26-FY30. This will add to incremental coal demand.

That said, the impact of the current market situation on Coal India’s sales volumes will be seen in the coming weeks and the next couple of months. Much depends on electricity demand.

After a subdued offtake in 2025 due to soft electricity demand, coal offtake is expected to pick up in the coming weeks as utilities build up inventories for summer. Early forecasts also warn about the onset of El Nino weather conditions in 2026. It promises to be to be an interesting summer for Coal India.

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