India’s Power Shift: Coal Imports & 255 GW Demand Surge

Quick Look:

• Within the first 11 months of the current financial year, India’s thermal coal imports exceeded the previous year’s shipments.
• A power demand peak of 255 GW will occur between April and June 2024, indicating a growth of 6-7% year-over-year.
• Recommendations for coal-based power plants include design modifications and boiler retrofitting to decrease reliance on imported coal.
• Domestic coal production aims to hit 1 billion metric tons by the end of FY 2023-24, with current figures crossing 900 million metric tons.

In a significant development, India has observed a surge in thermal coal imports and power demand. As a result, the country reflects a dynamic shift in the energy sector. This increase comes amidst growing consumption by industries and households alike. The period covered the first 11 months of the current financial year (FY) and ended in March. Additionally, thermal coal imports have already surpassed the entirety of FY23 shipments. This escalation is moving against the backdrop of an upcoming peak power demand of 255 GW during the April-June 2024 period. Thereby underpinning a year-over-year growth of 6-7%.

Thermal Coal Strategy: Less Imports, More Domestic Use

On March 7, experts issued strategic recommendations urging coal-based power plants to adapt their designs to utilize domestic coal. The aim is to lessen import dependency. The proposal suggests boiler retrofitting, with the potential cost implications being passed on to consumers.

Projections for imported coal consumption are set to fall below 15% in FY 2024-25. Breaking down the coal import details for FY 2022-23 reveals a total of 238 million metric tons (mt). Varying contributions from power plants and the non-regulated sector (NRS) are evident in these figures. Domestic coal-based power plants will incorporate 6% imported coal into their mix until June. The fiscal year is expected to reach a peak power demand projection of 260 GW.

Cutting Coal Costs: GST & Logistics Reforms

From an economic standpoint, the average price of India-delivered 4,200 kcal/kg GAR coal decreased to $70.75/mt during April-December 2023, down from $103.65/mt year-on-year. Proposed changes to the GST compensation cess structure based on coal value and quantity, along with suggestions for establishing a multi-modal logistics network, aim to reduce imports and enhance efficiency. Operationalizing coal blocks emerges as a critical step towards self-reliance and import reduction.

Coal Milestone: Nearing 1 Billion MT Target

The domestic coal production landscape is going to become a landmark achievement. As of March 6, the figures crossed 900 million mt, and the target is 1 billion mt by the end of FY 2023-24. Market trends, including Newcastle coal futures surpassing $130 per ton, reflect the global energy market’s volatility.

Despite a decrease in Asia’s seaborne thermal coal imports in January, India’s imports, though declining for the third consecutive month, rose 27.2% compared to January 2023. This trend, coupled with strong demand from Japan and South Korea, underscores the intricate dynamics of the global coal market. India’s thermal coal import forecast anticipates a 3-6% decrease due to increased domestic production and high inventories.