Coal consumption has increased due to soaring natural gas prices in Europe and Asia and increasing power demand due to a resumption in economic activity after the coronavirus lockdowns
Due mainly to a devastating heat wave that hit India, the world’s third-largest greenhouse gas emitter is planning to reopen more than 100 coal mines previously considered financially unsustainable. India’s power minister asked states to continue importing coal for the next three years and has evoked an emergency law to restart generation at some idle power plants using imported coal. Over 43 percent of the plants fired by imported coal, which have a total capacity of 17.6 gigawatts and account for 8.6 percent of India’s total coal power capacity, had been idled. Power ministry officials are working with those involved in debt restructuring of financially stressed idle plants to make them functional, and a government committee will facilitate passing on higher costs of generation to customers.
India saw its worst power crisis in more than six years in April, disrupting industrial activity and forcing India to accelerate coal mining. To get coal to utility plants, India stopped passenger trains to free up railway tracks for coal trains to supply coal-fired power plants. Similar to coal use in China, peak consumption of coal in India is likely many years away. India’s use of the fuel for power generation is growing at the fastest rate in over a decade.
Due to low electricity demand during the COVID pandemic, State-run Coal India, which accounts for 80 percent of domestic coal output, had its coal production fall for two straight years that ended March 2021. At the same time, India’s utilities stopped importing coal for power generation. With the country’s recovery from the pandemic and an unrelenting heatwave that increased air conditioning use, India’s electricity demand has skyrocketed and the government is forcing utilities to import coal and Coal India to ramp up production to address supply shortages. India, the world’s second-largest producer, importer and consumer of coal after China, is expected to increase coal production by up to 100 million metric tons in the next three years by reopening closed mines.
April’s Electricity Demand
India’s electricity demand in April reached a record high as its northern states reeled under the hottest pre-summer months in decades and residents increased their use of air conditioning. Currently, only 13 percent of India’s households have air conditioning, but that number is expected to grow to 69 percent by 2040.
In April, India’s power demand grew 13.2 percent to 135.4 billion kilowatt hours; electricity demand in the north grew between 16 percent and 75 percent. Power supply was short of demand by 2.41 billion units, or 1.8 percent, the worst since October 2015. Demand for electricity in Delhi increased 42 percent in April; northern states such as Punjab and Rajasthan had electricity demand grow 36 percent and 28 percent, respectively. A small hilly state in the northeast famous for its scenic mountains, Sikkim, saw soaring temperatures lead to a 74.7 percent increase in electricity use.
Electricity use is expected to grow as India’s weather forecast is for above normal maximum temperatures over most parts of the west central, northwest, north and northeast regions of India. India is likely to face more power cuts as utilities’ inventories of coal, which were at the lowest pre-summer levels in at least nine years, declined 13 percent, despite state-run Coal India ramping up its coal production by more than 27 percent. India’s power demand is set to rise at the fastest pace in at least 38 years.
Along with India, neighboring Pakistan has also been suffering from extreme heat. More than a billion people are at risk in these two countries. India’s western state of Maharashtra has already registered 25 deaths from heatstroke since late March—the highest toll in the past five years—with more fatalities likely elsewhere. Roughly 99 million people live in India’s 10 hottest cities. Temperatures have been over 40 degrees Celsius (104 degrees Fahrenheit). The capital, Delhi, topped 46 degrees Celsius (114 degrees Fahrenheit) at the end of April.
Unlike western countries, India sees coal as a major contributor to energy production, despite continuing development of renewable sources. Coal’s affordability and reliability offers India a more dependable way to provide electricity to its people, who are currently suffering from extreme heat and the need for reliable electricity to power their growing number of air conditioning units as they and other parts of the world climb out of poverty. As a result, India is opening up idle coal mines and idle coal plants and continuing to import coal.
India’s coal demand is likely to keep coal prices up. Coal consumption has increased due to soaring natural gas prices in Europe and Asia and increasing power demand due to a resumption in economic activity after the coronavirus lockdowns. Also, Russia’s invasion of Ukraine and the accompanying economic sanctions, including the European Union’s ban on coal imports from Russia, have helped to elevate coal prices. The rich western nations like Europe and the United States may be turning their backs on coal but the reality is the world is consuming record-breaking amounts of coal in pursuit of affordable and reliable electricity.
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.