With the onset of summer, the demand for electricity surges, sometimes leading to power shortages. This year, a shortage in power supply is anticipated, along with the possibility of reaching record highs in electricity demand.
In light of this challenge, the government has decided to continue blending imported coal with domestic coal for power companies. Let’s understand why the government has taken this step and what it means for investors!
What’s Happening?
According to the Economic Times, the government has taken a significant step to fulfil the upcoming summer’s electricity demand. Considering the increasing demand for coal and its supply in the country, the Ministry of Power has directed thermal power plants using domestic coal to blend 6% of imported coal until June 2024. This directive was issued in October 2023, increasing the blend of imported coal from 4% to 6% by March 2024 to meet the demand.
This image depicts the total power supply position in India.
This new directive implies that power plants will now have to stock up additional coal for the summer, including a mix of imported coal, ensuring uninterrupted electricity production during the peak season.
Why Does the Government Want to Continue Blending Imported Coal?
According to Mint, to meet the heavy demand for electricity in the upcoming summers, the government may need to increase dependence on imported coal. The Ministry of Power has stated in a letter that during April-June this year, electricity demand is estimated to reach up to 250 gigawatts. However, logistical issues related to the railway network could affect the supply of domestic coal.
Taking lessons from the coal shortage in 2021 and 2022, which arose due to increased electricity demand following economic recovery post-COVID-19, the government anticipates a limited supply of domestic coal despite an increase in the number of railway rakes. Hence, the decision to increase blending with imported coal has been made.
What Does It Mean for Investors?
The impact of this government decision could be observed on coal and power companies in the near future. It is a bit challenging to predict whether the impact will be positive or negative since blending imported coal could increase the costs for power companies. However, on the other hand, with the surge in power demand, we might witness an increase in sales.
What’s Next?
As per Money Control, the estimated electricity demand for 2023 was 230 gigawatts, but it surged to 240 gigawatts in reality. This unusual surge also led to a significant power shortage in the country, recorded at 10,745 megawatts on September 1.
According to Mint, on March 4, 2024, Ghanshyam Prasad, Chairman of the Central Electricity Authority (CEA), stated that in FY25, the peak power demand is estimated to increase by 7% to a record high of 260 gigawatts. The Ministry of Power has mentioned that with rising temperatures, the demand could even exceed this level.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
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