India could soon be on the brink of a power crisis

China is not the only Asian giant grappling with an energy crunch — India is also teetering on the edge of a power crisis.

Most of India’s coal-fired power plants have critically low levels of coal inventory at a time when the economy is picking up and fueling electricity demand.

Coal accounts for around 70% of India’s electricity generation.

A potential power crisis would likely have an immediate impact on India’s nascent economic recovery which is being led by industrial activity instead of services, according to Kunal Kundu, India economist at Societe Generale.

Government data showed that as of Oct. 6, 80% of India’s 135 coal-powered plants had less than 8 days of supplies left — more than half of those had stocks worth two days or fewer.

By comparison, over the last four years, the average coal inventory that power plants had was around 18 days worth of supply, according to Hetal Gandhi, director of research at ratings firm CRISIL, a subsidiary of S&P Global.

“You should see the stock levels going up to 8 to 10 days again by December,” Gandhi told CNBC. “But clearly, they will not go up anywhere close to 18 days even by March. Close monitoring will be needed for the next six months.”

State-run Coal India, which accounts for over 80% of India’s coal output, reportedly said last month it would ramp up supplies to utilities to address the coal shortage in power plants.

A combination of supply factors and falling coal imports led to the current crisis, commentators told CNBC.

India saw a spike in power demand between April and August. It came as the economy regained momentum following a devastating second wave of Covid-19.

The economic recovery was sharper than what many had anticipated, according to Gandhi.

Thermal power companies have had lean coal inventories and did not anticipate the spike in power demand this year, Gandhi explained.

Other sources of electricity generation — such as hydropower, gas and nuclear — also declined.

Gandhi said an unevenly distributed monsoon season was one of the factors. Less rainfall in some areas adversely affected the production of hydropower, or water power.

Some other factors included a sharp increase in gas prices as well as maintenance shutdowns at nuclear power plants, she said. All of that led to an increase in coal-fired power generation.

Logistical issues due to the monsoon season also constrained coal supply, despite there being enough pithead stocks available at Coal India, Sandeep Kalia, principal analyst at Wood Mackenzie, told CNBC. 

A pithead refers to the top of a mineshaft where most of the mined coal is kept before being transported to power companies. Rainy season typically makes that transportation more difficult as many routes tend to flood.

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