India’s energy sector is at a crossroads. While there is a growing realisation that prices of output like electricity need to be rationalised, the spike in prices of coal and gas is threatening an emerging regime where fuel costs would be a pass-through item. In a series starting today, FE dwells on this issue and attempts to define the future fuel mix for the economy.
With coal demand rising by over 10% annually and domestic supplies rising just 3-4%, India’s coal imports have grown at a compounded annual growth rate of 23% over the past five years. In terms of rupees, the increase in coal imports has been about 15% (CAGR) during these years.
The coal import bill soared a whopping 75% between 2008-09 and 2012-13. In April-December last year, the period up to which data are available, India imported coal worth R64,852 crore ($11.9 billion), up 72% over the same period five years ago. As a share of the current account deficit, however, coal imports have fallen from 23% in 2008-09 to 16.5% in April-December 2012-13, as the CAD back then was much lower (CAD for April-December 2012 was estimated at $ 71.7 billion, up from $36.5 billion for the same period of 2008). Still, rising coal imports could potentially have a more pronounced impact on the CAD in the short to medium term.
India has been pummelled by the steep rise in coal imports in the last couple of years. With domestic coal production stagnant, power companies are increasingly depending on imported coal. They are seeking regulatory nod to hike tariffs despite binding commitments on lower prices under power purchase agreements (witness the tariff hike demand from Adani Power and Tata Power for their Mundra plants). Power plants based on imported coal — either fully or partially — are hit badly by the rising cost of the fuel and in many cases, project implementation has faced undue delays and uncertainties on this account.
On average, imported fuel costs 40% more than domestic variants on gross calorific value basis.
Of the country’s total installed electricity generation capacity of 223 gigawatts (GW), two-thirds