Power generation up 14% in November despite coal supply concerns
Moneylife Digital Team 20 December 2011

Although power generation increased during November, the coal supply situation is grim with 48 out of 89 plants facing sub-critical inventory levels

According to official data, power generation in November rose 14% across India on better fuel availability and impressive monsoon. However, coal-supply position remained a concern with only a gradual coal production ramp-up following severe monsoons with 48 out of 89 plants facing sub-critical inventory levels compared with 27 plants last year, said BRICS Securities in a research report.

During the month under review, energy deficit rose while peak deficit declined, thus bringing down the merchant rates slightly. Though energy deficit rose to 10.4% from 9.6% in October, peak deficit declined to 12.5% from 13.1% a month earlier, resulting in lower merchant rates.

Following the slowdown in coal output, 48 plants out of total 89 plants, reported sub-critical levels of coal inventory compared with a much lower 27 plants last year. “With Coal India (CIL) downgrading its production estimates and with lower production during first half of FY11-12, we continue to expect shortage in coal for the current fiscal. International coal prices have corrected 6% (year-on-year) to $103, but landed costs are still up around 10% due to rupee depreciation," said the report.

The coal ministry rejected Coal India’s proposal for bringing down its production target for FY11-12 to 448 million tonnes (MT) from an initial 452 MT. CIL had made the proposal after it missed the first-half production target by 20MT and produced 176 MT due to issues such as heavy rainfall and local unrest. CIL trade unions have demanded at least 50% pay hike in the forthcoming National Coal Wage Agreement-9.  The management has requested the unions to accept only 0% hike, considering the economic environment.
In FY11-12, the industry has added a capacity of 11,870MW, including renewable energy, which is 85% of the target of 13,918MW. For the 11th Five Year Plan spread between 2007-2012, the industry had so far achieved 67% of its targeted capacity, adding about 52 gigawatt (GW), including renewable energy, as against the target of 78.4GW.

During November, the capacity addition was at 2,807MW against the targeted 1,877MW. “We expect around 55GW to be added in the 11th Plan against the original target of 78GW, a shortfall of 23GW,” the brokerage said.

Coal generation increased 16% on capacity addition while hydro and nuclear power generation rose 15.5% and 9.8%, respectively, on better fuel availability and impressive monsoons. Gas generation also posted a growth for the first time in 12 months rising almost 8% on a low base during November.
According to the report, during the month, NTPC’s total generation increased 11%, driven by 11% growth in coal and 12% growth in gas generation. Adani, Reliance and JSW reported strong numbers due to capacity additions. Companies with gas-based plants such as GMR and GVK continued to see declines with gas supplies not going up, the report said.

The government circulated a draft Cabinet note proposing imposition of 14% duty, including 5% custom duty, 5% special additional duty and 4% CVD, on imports of power equipment, a proposal aimed at providing a level-playing field to domestic manufacturers like BHEL and Larsen & Toubro. However, the recent 16% depreciation in the rupee effectively nullifies any need to protect domestic industry. Additionally, purchases from overseas suppliers often come tied with supplier credit, which could be advantageous at a time when domestic banks may find it difficult lending to power projects, the report added.

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