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Thermal plants to work at a capacity below 53% in FY21 as power demand drop

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The Plant Load Factor (PLF) for thermal power stations across the country is projected to fall below 53% in this fiscal year. The combined demand for power from industrial units and commercial establishments would reduce the use of energy, according to the CARE Ratings report.

The Covid-19 lockdown, which came into effect on March 25, brought many business activities across the country close to a standstill. Mining has been classified as an essential industry and has been allowed to remain operational during the lock-down period.

However, production was affected by the shortage of labor left by as many to their native places as possible in the aftermath of the pandemic. Moreover, the cessation of business activity has sharply reduced the demand for power. Almost 70% of India's electricity generation is coal-based.

The power sector consumes about 70 % of the total coal generated in India. Electricity generation (excluding renewables) decreased by 25.4 per cent year-on-year (y-o - y) to 81.5 billion units in April, with thermal PLFs facing greater impact than renewables due to higher variable costs and the mandatory status of renewables, nuclear and hydropower generation. Coal-based power generation fell sharply by 31.7% in April 2020. Thermal PLF declined to 42.4% in April 2020 due to lower demand.

“Inventories of coal at thermal power plants have sharply risen in the last three months and power utilities are now refraining from purchasing more coal. As on June 1, inventory of coal with power plants stood at 49.5 million tonnes, sufficient for 29 days. This is more than the Central Electricity Authority (CEA) mandated 22 days stock. Moreover, coal stocks at CIL’s (Coal India Ltd) pit-head alone stood at about 75 million tonnes as on April 1, according to the company”, the report from CARE Ratings noted.

Due to the surplus supply on the domestic market, imports of non-coking coal are projected to decline in this fiscal year. Premiums at recent online auctions conducted by CIL have stalled to almost zero, which, along with relaxed payment terms, favor coal buyers. Coal demand from thermal power stations is expected to remain sluggish due to high inventories and lower PLF rates.

Apart from thermal coal, imports of coking coal are also expected to decline as the crude steel production in FY21 is expected to decline. Global steel production is expected to contract by nearly six per cent during the calendar year 2021, which is likely to keep the price of coking coal under control.