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India: abnormal heat waves are a concern

The harsh summer season in India increases the demand for fuel to avoid power outages, leading to higher electricity prices in the spot power market. Coal and gas reserves are sufficient to meet demand.

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India is experiencing a severe summer season with above normal maximum temperatures in various parts of the country. The India Meteorological Department (IMD) has issued a warning that heat wave conditions are likely to continue in eastern India over the next few days. This has raised expectations of increased fuel consumption in the country, with gas, coal and LNG likely to receive a boost to avoid power outages.

Distribution of energy production in India: coal and gas in the lead

In the energy sector, an imminent shortage is already present. An electricity shortage of 22.53 million kWh occurred on April 17, compared with a shortage of 3.30 million kWh on April 2, according to daily electricity supply reports from the National Load Dispatch Center. As a result, electricity prices in the Indian spot power market rose from Rs. 3.50/kWh ($0.04/kWh) on April 2 to Rs. 7.04/kWh on April 17.

Of India’s total power generation capacity of more than 400 GW, just over 6% or 25 GW is gas-fired, while more than 52% is coal-fired, with the rest coming from renewable, hydro, nuclear and other sources, according to official data. The call to bolster reserves and fuel supply is expected to have the greatest impact on coal and gas to some extent.

India-based end-users reported that there was enough gas to meet electricity needs even though its use had increased during the summer. Some gas-fired power plants may also offer their gas-fired electricity on the power exchange due to firm demand. Lower LNG prices are also likely to help India’s price-sensitive downstream buyers during the hot summer months.

Heat waves: Current energy situation in India under control

According to data from the Ministry of Coal, India’s coal production increased 14.76 percent year-over-year to 893.08 million tons in fiscal year 2022-2023 ending March 31. Coal stocks at Indian power plants held up at about 37 million tons in the first 15 days of April, enough for more than 13 days of burning, according to the latest data from the Central Electricity Authority of India.

In addition, the Department of Coal has already ordered all power generation companies to blend up to 6 percent imported coal into their demand through September. The situation in India is currently under control due to “decent domestic production” despite low market activity due to the upcoming Eid vacations in many Asian countries. However, the government is preparing to avoid a potential energy crisis and has already taken measures such as ordering power plants using imported coal to run at full capacity to avoid widespread power outages.

Market participants also noted that after Europe cut back on coal imports, global exporters, including the U.S., South Africa and Colombia, are rushing to high-consumption regions in Asia in search of buyers, and India could benefit from this. “I expect more coal imports for blending purposes in the coming weeks,” added a Singapore-based trader.

India is facing a high demand for energy to cope with the summer heat wave, leading to an impending shortage of electricity and rising prices in the spot power market. Despite this, the Indian government is taking steps to avert a potential energy crisis by bolstering coal and gas reserves and ordering power plants to run at full capacity.

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