Despite an increase in electricity demand, Indian power plants have reduced their fresh coal purchases from state-run Coal India and are instead utilising their record-high inventories.
This marks the fourth consecutive month that coal consumption for power generation has decreased, according to a Reuters report.
Coal-fired power plants in India often rely on existing inventories of coal when the increase in electricity demand surpasses the production capabilities of Coal India.
This dynamic is crucial, as Coal India is a dominant player, responsible for approximately three-quarters of the nation’s total coal output.
India holds a significant position on the global stage as both the second-largest producer and consumer of coal, trailing only China in both categories.
This substantial reliance on coal, coupled with Coal India’s market share, highlights the interconnectedness of energy supply and demand within the country’s power sector.
Reduction in coal-fired electricity
The ability of power plants to draw from stockpiles serves as a critical buffer during periods of high electricity consumption, helping to ensure grid stability and meet the growing energy needs of the nation.
However, analysts and government data indicated that increased hydro and renewable power generation has led to a reduction in coal-fired electricity output.
According to a Monday note from Citi analysts, coal inventories at power plants saw a significant 13% decline in July, dropping from a record 58.1 million metric tons at the end of June.
This decrease was notably sharper than the average 2% drop observed during July over the past decade.
“Adequate inventories and no risk of a coal shortage have helped power plants reduce buying from Coal India,” Partha Sarathi Bhattacharya, former chairman of Coal India was quoted as saying in the Reuters report.
He added that utilities now had more flexibility in managing their costs.
But this is transient, and coal buying will increase once power demand starts growing faster.
Output decline
In July, Coal India experienced its sharpest production decline since 2019, with output falling 15.6% year-over-year. Concurrently, supply decreased by 9.9%, marking the fastest rate of decline in five years, according to company data.
Coal India’s market share has declined due to increased production from private miners. This shift began in 2020 when New Delhi opened coal mining to the private sector.
While electricity consumption growth has slowed this year due to a general economic downturn and significant rainfall lowering cooling requirements, electricity generation saw a slight increase in July.
Coal-fired power generation in India, which typically accounts for approximately 75% of the country’s electricity production, decreased for the fourth consecutive month in July, according to an analysis of data from the federal grid regulator, Grid-India.
Total power generation rose by 1.8% to 164.66 billion kWh in July, driven by a 22.4% annual increase in hydropower and a 14.4% rise in renewable sources like wind and solar. This growth occurred despite a 4.2% decline in coal power, according to the data.
In July, coal’s contribution to power generation dropped to a five-year low of 64.3%, down from 68.3% the previous year.
Analysts anticipate this downward trend in coal-fired power’s share to continue. This expectation is based on India’s addition of a record 22 GW of new solar and wind capacity in the first half of 2025 and its ambitious goal to reach 500 GW of non-fossil fuel power capacity by 2030.
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