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India Faces Coal Shortage, Again

India faces another coal crunch as coal inventories at utilities are at the lowest for this time of the year in nearly a decade, while power demand is set to surge, analysts and officials told Reuters.

Power cuts are not out of the question, too, considering that coal inventories before the summer are currently sitting at a nine-year low.  

Last autumn, India’s massive coal fleet was running out of coal, threatening a power crunch in the country that relies on the dirtiest fossil fuel for most of its electricity generation. Coal is the major power generating fuel in India, accounting for 70 percent of electricity generation.  

As of early October 2022, India had an average of just three days worth of coal in stockpiles, and some officials feared the coal shortage could last for up to six months.

India now faces another coal shortage, with high global coal prices, also because of the Russian war in Ukraine and the subsequent EU embargo on Russian coal imports, which is set to reverberate through energy markets and commodities worldwide.

“The problem is, even after Coal India and the coal ministry kept asking power plants to stock up, the utilities kept reducing their inventories,” Rajiv Agarwal, secretary general of the Indian Captive Power Producers Association, told Reuters this week.

Amid rising electricity demand, India faces supply challenges, Fitch Ratings said in a commentary last week.

Coal stocks are below the critical level - defined as 25 percent of normal requirements - at 45 percent of India’s coal-dependent power plants, according to Fitch.

“Coal inventory, affected by the early onset of summer, is already low at around nine days, compared with normal requirements of around 24 days,” the rating agency said.

“A commensurate increase in electricity generation to meet the increased demand is unlikely, limited by the availability of coal, which accounts for two-thirds of the power generated in India,” Fitch Ratings noted.

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By Charles Kennedy for Oilprice.com

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