An already sweltering summer and acute coal shortages are triggering blackouts across parts of India, raising fears of a new power crisis that could roil Asia’s third-biggest economy.
A surge in demand for electricity has prompted states including Punjab and Uttar Pradesh in the north and Andhra Pradesh in the south to cut off supply. The disruption, as long as eight hours in some places, is forcing customers to either endure the heat or look for costlier back-up options.
The blackouts sparked by the scarcity of coal—the fossil fuel that accounts for 70% of India’s electricity generation—are threatening to hobble the $2.7 trillion economy that’s looking to fire up all its engines after emerging from a record contraction caused by the pandemic. They are also fanning inflation at a time when policy makers are struggling to rein in runaway energy prices fueled by Russia’s war in Ukraine.
Small and large businesses alike, including producers of metals, alloys and cement, are having to spend more on energy in a tight domestic and global market. A persistent shortage of coal could weigh on the country’s industrial output and become another “stagflationary shock,” according to Nomura Holdings Inc.
“Both demand- and supply-side factors are responsible,” economists led by Sonal Varma at the Japanese bank wrote in a research note on April 19. “Electricity demand has shot up, due to the reopening and as the country heads towards the peak summer season, but supply has been disrupted due to the reduced availability of railway rakes to transport coal and lower coal imports.”
India is seeking a return to a full year of growth after gross domestic product shrank 6.6% in the year through March 2021. But headline inflation rose to a 17-month high in March, above the central bank’s target of 6%, posing headwinds.
While a recovering economy and a revival in industrial production are causing the surge in demand, the heat wave is also adding to the spike.
Temperatures have continued to soar in many parts of the country, prompting the weather department to issue heat-wave warnings. The nation’s capital New Delhi saw 108.7 degrees Fahrenheit (42.6 degrees Celsius) on April 20, its hottest day in five years, according to the Indian Meteorological Department. The national average reached almost 92 degrees in March, the highest on record since authorities started collecting the data in 1901.
Power outages have upended operations at some textile mills in the western and southern parts of the country because the high cost of cotton prohibits them from splurging on expensive diesel-powered generators and other alternatives, according to Atul Ganatra, president of the Cotton Association of India. That will reduce cotton consumption drastically, he said.
Atul Singh, who runs a car dealership and repair shop in the eastern state of Bihar, said frequent power cuts and the use of diesel are crimping his margins. His firm spends more on diesel than electricity, Singh said.
Farmers haven’t been spared either. Mohit Sharma said he’s struggling to irrigate his corn fields in Uttar Pradesh. “We are getting power neither during the day, nor during the night,” Sharma said by phone. “Kids can’t study in the evening and we can’t even rest at night.”
Coal inventories at Indian power plants have dwindled recently mainly because of lower domestic output, transportation constraints due to a limited number of rail carriages and reduced imports as a result of high sea cargo rates. Power ministry data show that, as of April 19, electricity producers held stock that could last an average of just over eight days. Despite boosting output by 27% in the first half of this month, state-owned Coal India Ltd., which operates some of Asia’s biggest coal mines, said it hasn’t been able to keep pace with the “intense demand.”
“Thermal plants across the country are grappling with coal shortage as the power demand in states has increased,” All India Power Engineers Federation’s Dubey said in a statement Wednesday. “Many of them are not able to bridge the gap between demand and supply because of insufficient coal stocks at thermal plants.”
To be sure, a summer coal crunch has long been a routine affair, largely due to the inability of Coal India to scale up production and poor infrastructure. When the pandemic cooled industrial output, the lull in demand further slowed progress in adding capacity. The coal crisis returned last year, revealing the cracks as the economy reopened, with high prices of imports adding to the crunch. In September, stockpiles at power plants fell to the lowest since 2017, while metal producers pleaded for supplies.
There could be more pain on the horizon, said Debasish Mishra, a Mumbai-based partner at Deloitte Touche Tohmatsu. With monsoon rains around the corner, the flooding of mines and roadways will likely slow down coal production and supplies.
“Plants should be accumulating coal ahead of the monsoon season. But that’s not happening,” said Mishra. “With demand surging, we may be heading for a coal crisis worse than last year’s.”
