December , 2020
Coal sector amidst the pandemic in India
16:21 pm

Sovik Mukherjee




On March 24, 2020, India went into a nationwide lockdown for 68 days. However, as the pandemic continued, the lockdown was extended in many parts of India. From an energy perspective, this meant that the coal power sector faced a contraction in demand for electricity in the short to medium-term and competition from renewable power over the long-term.  


Lockdown impact



As argued in IEA’s Clean Coal Centre’s September Report, plant load factors (PLF) in the coal fleet fell to 40-50% in the first half of 2020. This was a particularly unwelcome trend for plant operators that have already been facing falling PLFs since 2009. The sudden drop in output in 2020 from coal power stations has led to growing coal stockpiles. This temporary surplus in coal supplies had repercussions along the supply chain, eventually cutting the need for coal imports - which halved - and creating a modest decrease in domestic production.


Coal India Limited (CIL) revised its production target to 650-660 million tonne for the fiscal year 2020-21 in August 2020 in the wake of the disruptions caused by the pandemic. They had set a target of 710 million tonne for the current fiscal before the pandemic set in. However, analysts from ICICI Securities project an estimated output in the range of 550-580 million tonne and sales of 550 million tonne and a lower EBITDA value (i.e., earnings before interest, taxes, depreciation, and amortization as a measure of overall financial performance of a company) of 17-18% for CIL in the current fiscal. 


Coal prices are likely to be subdued in the current financial year on the back of a low power demand and piling inventory at power stations. According to a report by Moody’s Investors Service’s ratings, the pandemic might lead to an increase in the clean energy transition amidst the falling demand for electricity. The report states that renewables have shown more resilience across the US, Europe, China and India even as coal generation has continued to decline. The lockdown has led to a 20% decrease in India’s power demand, with coal generation suffering the highest impact. The impact of recession and weaker growth expectations is going to be expected across all consumer segments including commercial, industrial and residential segments, leading to a decrease in the production of oil and coal.


For the first nine months of the year, imports were estimated at 128.24 million tonnes, a 17% slide from the 154.8 million in the same period last year. Non-coking coal imports reduced 34% and coking coal imports declined by 41%. While it appears low-rank thermal coal is struggling to regain its foothold in India, the same cannot be said for coking coal, used in steel-making and higher quality thermal coal that is often used in industrial processes like making of cement.


The road to recovery: Challenges ahead


With its production impeded by the Covid-19-induced slowdown during the first four months of the present fiscal, CIL started logging positive growth from August onward on a monthly basis. For the first time in this fiscal, CIL posted a positive growth of 0.9% in cumulative production till November so far. Production during April-October was 282.9 MT which was 2.5 MT more than that during the same period last year. India’s imports from Australia, the world’s top exporter of coking coal, rose to almost five million tonnes in October, some 25% higher than the 3.25 million mark in September last year. India imported 3.09 million tonnes from South Africa in September - the most since March and up from 2.38 million in August and 2.37 million in September 2019. Overall, the coal import data suggest that India’s steel and industrial sectors are recovering faster than the coal-fired power sector. As the country’s core sector output contraction narrowed sharply to 0.8% in September 2020, growth in the coal sector was nearly 22% in November, the highest among all the eight core sector industries, compared to the same month last year. CIL contributed around 80% of this growth.


After several months of moderate volume growth and rising renewable capacities, investors had moved away from CIL. Its stock dropped to an all-time low in October 2020. But with a recovery in sales and valuations of investor sentiments, November’s production and sales volumes were up by 3.3% and 8% year-on-year (y-o-y). However, it’s still about 39% away from its pre-Covid highs. While the lockdown impacted the company’s volumes significantly during the June quarter, a recovery in the September quarter with a 10% sales growth came at a good time. Further, longer-term concerns could rise as private miners are exploring commercial mining. But in the short term, the recent auction of coal mines may not impact Coal India. Most of these mines will take about five to seven years to begin commercial production as land acquisition and other clearances will also be required.


The increase in renewable capacities also poses a threat as countries are looking to switch over to new renewables-based sources of power generation given that studies are establishing links between air pollution and Covid-19 cases. Moreover, coal has and will continue to become more expensive compared to renewables (also with respect to the new renewables) and 51% of the country’s coal power costs more to run than building new renewables, according to Carbon Tracker’s March (2020) report. By 2030, it will be cheaper to build new renewables-based sources of power generation than to run existing coal-based sources of power. At the UN Climate Action Summit in New York in 2019, when India promised to double the renewable target to 450 GW by 2030, the stress was on the renewable sources of power, especially solar panels. The cost of adding solar electricity stands at about 2.5 rupees per unit generated, compared to around 4.5 rupees for new coal capacity. However, this is no easy feat and with a looming global recession and an Indian government strapped for cash, there can be no trillion-recovery package expected to accelerate India’s clean energy transition immediately. So, the onus will be on the coal sector.




Summing Up


CIL’s coal production rose by 3.3% to reach 51.7 million tonnes (MT) in November 2020 from 50 million tonnes (MT) in November 2019. CIL's coal offtake in November 2020 stood at an estimated 51.3 million tonnes (MT), recording an 8% growth from 47.5 million tonnes (MT) in November 2019. With the coal sector staging a quick recovery, CIL is eyeing one billion tonne of output by 2023-24. The outlook for the global coal industry will depend on the demand for the fuel in key Asian consuming nations, including Japan, China and India, which are expected to recover next year. However, any resurgence of Covid-19 cases in India and China can undercut the demand recovery that is expected in 2021.


The author is Assistant Professor in Economics, Faculty of Commerce & Management St. Xavier’s University, Kolkata.





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