India's weak hydropower output may fuel higher coal reliance amid surging demand

India's weak hydroelectricity production in recent times might stimulate further usage of coal to fulfill its rising power demand in the coming months, which is also likely to keep the import window open for the country.

India has recently delivered a stellar performance in its coal production by nearly touching the 1 billion mt mark during the fiscal year 2023-24 (April-March), which was in line with the federal government's target of reducing the country's dependence on coal imports. India's coal production was at 997.4 million mt in FY24, up 11.67% on the year, data from the federal coal ministry showed.

However, depleting hydroelectricity output amid irregular rainfall in the past fiscal has led to a lower water level available in the country's primary reservoirs which could further reduce India's hydropower generation during the summer.

According to the latest data available from the weekly bulletin of the Central Water Commission, live storage at the country's 150 primary reservoirs was at 22% of its total capacity. Live storage of these reservoirs stood at 39.77 billion cubic meter on June 6, compared with 50.55 billion cubic meter in the corresponding period a year ago, according to the data.

"Less than usual hydropower production last year has somewhat kept the sentiment in the market positive as the participants believe that Indian buyers would attempt to book more cargoes this year especially for summer to have more stocks in hand," an Indonesia-based trader said.

India has imported around 85 million mt of thermal coal so far in 2024, S&P Global Commodities at Sea(opens in a new tab) data showed.

Moreover, the first half of 2024 could potentially show stronger coal imports than the second half amid a likely lower hydropower generation because of the impact of El Nino, Commodity Insights Senior Analyst Pat See Khoo had said earlier.

India's cumulative hydropower production dropped 17.15% on the year to 144.12 billion units in the last fiscal year, data from the federal government's Grid Controller of India Ltd showed. The country's average hydroelectricity generation was at 8.57 billion units in April, down 7.37% as compared to the same period a year ago, the data showed further keeping the downward trend alive.

The country's share of hydroelectricity generation in its total power output comprising thermal, nuclear and hydropower fell to 5.95% in April as compared to 7.05% in the corresponding month a year earlier, data from Central Electricity Authority showed. Thermal power's share in the said energy-mix, however, rose to 90.78% in April, compared with 90.11% in the year-ago period, the same data showed.

Moreover, a second trader from Indonesia said that even if the Indian government has enhanced domestic production, the demand is still quite higher than that of supply in India. "Hence, the dependence on coal is unlikely to wane in near term at least," the trader added.

Coal dominates amid strong energy demand

Even though the Indian government has pledged to become carbon neutral by 2070 and ramped up adding renewable energy-based infrastructure in the country, its contribution to the country's total power generation is yet to become significant.

As per the latest data available with the Central Electricity Authority, around 8.5% of India's total electricity output resulted from renewable energy sources in FY24, while around 80.63% was generated through thermal sources.

As a result, the government has also taken multiple measures to ensure electricity generation from coal-based infrastructure keeps running in the wake of mounting demand. Among the measures, the government has asked the country's coastal power plants which run completely on imported coal to operate with maximum capacity till Oct. 15 and domestic coal-based plants to continue blending 6% imported coal with domestic produce until June 30.

The federal power ministry also said earlier that the peak power demand is expected to reach 260 GW in the ongoing fiscal as compared to 243 GW in the year-ago period.

Further, a recent report by the federal coal ministry revealed that India's under-construction power plants(opens in a new tab) will require an additional 106 million mt thermal coal by FY30, as coal is expected to remain a dominant source of fuel supply for electricity generation, Commodity Insights reported on May 30.

The coal ministry report also said that India's coal demand from the power sector alone was expected to reach 1.16 billion mt per annum by FY30.

Currently, India has 27 GW of coal-based power generation capacity under the pipeline, while the existing capacity stands at 211 GW. Moreover, India is set to add 80 GW thermal power capacity by the year FY 2031-32 to meet the nation's power requirements, the federal power ministry had said earlier.

A recent report by the International Energy Agency further pointed out that India was one of the major countries where industrial demand for energy was on the path of exceeding its peers. "As a result of its GDP growth potential, urbanization, growth in built spaces, and the increased demand for electricity as well as materials such as cement and steel, energy demand growth in India is on track to outpace all other regions of the world by 2050," the report said.