India's power shortages outstrip summer peak as El Niño saps hydro

A sweltering summer has sapped India's power capacity leading to shortages of hydropower and putting pressure on its coal stocks. The summer's heatwave peaked but problems were exacerbated by a weak monsoon that cut hydropower output leading to a spike in coal demand, Bloomberg  reported on September 24, citing power ministry data.

Night-time shortfalls reached as much as 7.7 GW in September, more than in April and May, when heat drove demand to a record of about 271 GW. Hydropower generation fell 12% year-on-year in the first three weeks of the month, putting it on course for a fifth straight monthly decline after a 16.7% drop in August. Coal-fired output rose 18% in September and is up 11% in the fiscal year that began on April 1.

The gap is opening after dark, when solar output falls away and the grid leans on hydro and coal. Hydropower accounts for only about 9% of India's generating capacity, and slow growth in hydro, nuclear and energy storage leaves coal to fill the hole left by dry reservoirs. Coal and lignite plants already supplied almost 70% of India's electricity in April-June, and the power ministry expects peak demand to reach 300 GW in 2027.

El Niño has left rainfall over the June-September monsoon 15% below normal, and if the deficit holds this will be the weakest monsoon since 2009. The failed rains add India to the countries hit in this year's disaster season and also threaten the rice harvest, which industry officials expect to fall by about 10mn tonnes to 144mn tonnes, the sharpest drop since the 2009-10 season.

Heavier coal burn has pushed stockpiles at power plants to their lowest in about three years. The Central Electricity Authority's daily coal stock report for September 21 lists 76 of 188 plants as critical, holding less than a quarter of their required stock, with total inventories of 22.7mn tonnes, or 39% of the 57.9mn tonnes they are meant to hold. Plants had 42.8mn tonnes, about 14 days of burn, on July 12. Plants located near mines, normally the cheapest generators, held only about half of their required reserves, according to Bloomberg.

The coal exists but is not moving fast enough. State miner Coal India (NSE: COALINDIA) holds about 76mn tonnes at its pitheads, Business Standard reported on September 21, and analysts at Crisil have described the fall in plant stocks as a temporary logistical problem rather than a structural shortage.

Coal India needs to speed up shipments, particularly to the lower-cost plants now short of fuel, and the railways must supply enough wagons to move it, said Rupesh Sankhe, senior vice-president for research at Elara Capital.

"We are not in a crisis yet, but the government needs to act fast to prevent one," Sankhe told the agency.