Coal Insights, February 2023

14 Seabor ne thermal coal offers decline in February

15 Seabor ne coking coal offers continue to rise in February

16 India’s Januar y coal imports up 32.5% y-o-y

17 CIL’s coal production up 11.5% in January

18 SCCL’s coal production up 14% in January

21 India notifies activities for carbon credits trading

25 Trading of costlier power to begin in March

26 No power capacity addition in December

30 Sponge iron production up 5% in Januar y

31 Coal handled by major por ts up 31% till January

32 Indian Railways’ coal handling up 13% till January

33 Glencore 2022 profit soars on higher coal prices

35 China coal prices fall as output grows, demand moderates

38 US coal production to decline by 13 percent in 2023: EIA

40 Tata Steel sees lower coking coal costs in Q4

41 NTPC eyeing 6 GW of coalfired capacity

43 Adani Car michael peak capacity to reach by April

44 Vedanta commences Jamkhani mine operations

46 Corporate update

48 Gover nment update

50 E-auction data

52 Port Data

6

STORY

Probability of El Nino occurring this year is increasing with every revised prediction.

19

FEATURE

The `1 million-crore infra push

Critical transport infra projects in ports, coal, steel, fertiliser and food grains planned.

22

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INTERNATIONAL

South Africa suffers major power crisis, deficit to go up Shortfall estimated at 4,000MW6,000MW.

FEATURE

India’s LiFE can cut energy bills, emissions worldwide: IEA

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CORPORATE

Coal India’s PAT touches all time high E-auction pricing easing

Bracing for a hot summer

Sumit Maitra

Just as winter marked its official exit from the Indian subcontinent, there are increasing concerns over unusually hot summer days ahead based on current weather analyses.

On February 26, India Meterological Department (IMD) said maximum temperatures are above normal by 3-5°C in most parts of Northwest, West, Central and East India and in the range of 35-37°C in many parts of Gujarat, Maharashtra, Telangana, Odisha and some parts of Madhya Pradesh and Chhattisgarh.

On February 20, in Delhi, it was 9°C above normal while Mumbai suffered 6°C higher temperature than normal.

The world itself is 0.6°C hotter than normal with the Northern Hemisphere, where temperature is 0.84°C hotter than usual, taking a bigger hit than the South.

Several areas of USA are seeing temperatures of 10°C above normal.

IMD had earlier issued its first heat wave warning in Maharashtra, that too in the coastal regions of Kutch and Konkan areas but later withdrew following appearance of sea breezes.

What is El Nino?

A hot summer is likely to further drive up energy demands across the country, experts believe.

During Q1 of FY23, against the requirement of 405 Billion Units (BU), the energy supplied was 401 BU. Peak demand touched an all-time high of 212 GW on June 10, 2022, attributed to early summer with 68 days out of 91 days recording more than 3.53 degree celsius from the normal temperature.

During recent winter days, with the decline in minimum temperature, consumption of power and peak demand increased sharply, unlike in the past.

Peak demand grew 12 percent year-onyear (y-o-y) against overall energy demand growth of 9 percent.

While changes in average temperature do not affect electricity consumption to a large extent, extreme temperatures have a strong impact.

“The actual power supply position for December 2022 and January 2023 indicates surge in the all India energy demand and peak power demand as compared to the projected figures for 2022-23,” Central Electricity Regulatory Authority said on February 14.

Itis a phenomenon that occurs with the slowing or reversing of the direction of winds of the equatorial Pacific region and thereby increasing or decreasing the temperature of waters over a vast sea area of the Central and Eastern Pacific Ocean. There are two conditions. The first condition, wherein an increase in pressure over the West Pacific Ocean results in the movement of both water and wind to the East Pacific, is called El-Nino. It leads to rains in the East Pacific coast of Chile, Argentina, etc., and droughts in India, Indonesia, Australia, etc. The second condition is called La-Nina and it causes more-than-average rainfall in India

During El Nino, a lot of accumulated heat gets released into the atmosphere resulting in warm weather across the Indian subcontinent in winter and dry conditions and a deficient monsoon in summer. The El Nino weather phenomenon in 2015 in India led to extended hot and humid weather up to Oct ’15. The average temperature during April-October 2015 was more than 2.20 °C on 133 days out of 201 days. During the summer of April-June 2019, another El Nino year, the average temperature was more than 2.80 °C on 64 days out of 91 days.

“Maximum temperatures are above normal by 3-5°C in most parts of Northwest, West, Central and East India. Temperatures are in the range of 35-37°C in many parts of Gujarat, Maharashtra, Telangana, Odisha and some parts of Madhya Pradesh and Chhattisgarh.”

India Meterological Department

Coal Insights Bureau

The FY24 Union Budget focuses on sustainable economic recovery through infrastructure creation.

On the domestic front, the capex of `10 lakh crore and the capital outlay of `2 Lakh crores put up for the modernisation and expansion of the Indian Railways is the highest ever outlay.

The Budget has also proposed to set up an urban infrastructure development fund with an annual allocation of `100 billion to develop urban infrastructure in tier II and III cities.

The government has maintained its focus on capital expenditure with a budgeted growth of 37 percent in FY24 Budget

Estimates to `10 lakh from from FY23

Revised Estimates of `7.3 lakh crore.

Bulk of the hike comes from railways (51 percent growth), roads and highways (25 percent growth), defense (8.5 percent), etc.

The `1 million-crore infra push

The planned 100 critical transport infrastructure projects in ports, coal, steel, fertiliser and food grains sector will be taken up on a priority basis with investment of `75,000 crore including `15,000 crore from private sector in PPP mode.

In line with Government’s vision on promoting clean energy, the budget focused on supporting domestic manufacturing and the development of the electric vehicle ecosystem in the country.

Accordingly, customs duty exemption was extended to import of capital goods and machinery needed for manufacture of lithium-ion cells for batteries used in electric vehicles. Lower cost of batteries will make electric vehicle’s more affordable.

“The Union Budget strove to achieve a fine balance between fiscal consolidation and supporting the economy through higher capital expenditures,” said Shrikant Chouhan, Head of Equity Research, (Retail), Kotak Securities Ltd.

“The big picture policy support that we saw in the budget was also about creating the transmission line from Leh-Ladakh to bring clean power, solar power from there into the main parts of the country. Also, the support through viability gap funding for battery storage of nearly 4000MW of ours will also help in turning up clean energy into 24 hours clean energy solution,” Dr Praveer Sinha, MD, Tata Power has said.

“The Finance Minister presented a balanced budget which had lot of initiatives and programs to push the infrastructure sector. The programs were typically in areas of clean energy, renewable energy, battery storage, pump storage opportunity and also the longterm view as to how we will move towards 2030 with 500GW renewable capacity. It is heartening to see that the government is also focused on decarbonizing the economy and I am sure with all these announcements of the government in the budget, we will be able

India’s LiFE can cut energy bills, emissions worldwide: IEA

in driving energy transitions,” IEA has said after analysing the impact of measures like those proposed by the LiFE initiative, such as buying an EV or taking public transport, as part of comprehensive energy transition strategies.

Behavioural change and consumer choice in energy transitions

The choices of individuals are critical to enabling energy transitions and can have substantial impacts on markets and regulation. For example, the rapid move away from single-use plastics was led in many instances by public sentiment, followed by government-enforced bans.

But there is also a clear and simultaneous role for policy, IEA says.

The availability of infrastructure, consumer awareness and prevailing sociocultural norms affect the likelihood of consumers changing their behaviour. For example, if public transport infrastructure is undersupplied, unreliable or inconvenient, consumer choices will be driven towards private transport modes.

Coal Insights Bureau

Launched by India in October 2022, the Lifestyle for Environment (LiFE) initiative aims to encourage the adoption of sustainable lifestyles in India and internationally to tackle the challenges of environmental degradation and climate change.

“In today’s context of the global energy crisis and the continued challenge of climate change, LiFE is an important opportunity to accelerate clean energy transitions,” International Energy Agency (IEA) has said in a report which examines how India has integrated several policies in its energy transition strategy that are aligned with the LiFE initiative, highlighting the potential for behavioural change and consumption choices to help advance energy transitions globally.

India has integrated several policies in its energy transition strategy that are aligned with LiFE. The economy is already 10 percent more energy efficient than both the global and G20 average.

India took less time to go from half to full electricity access than other major economies and is already the third largest national market globally for renewables, IEA said in its report. There has been growth of consumer-centric solutions like distributed solar PV take off, with rooftop solar growing 30-fold in less than a decade.

Supportive policies and awareness campaigns in India have also driven electric passenger vehicles to a market share of almost 5 percent in 2022 - with sales tripling from 2021.

“India’s example shows the importance of behavioural change and consumption choices

The challenge for clean energy transitions is to create a virtuous circle where individual choices drive market transformation and government policy, and where policy and market transformation simultaneously enable more sustainable consumption choices by citizens.

Unsustainable choices can also undermine climate mitigation efforts. For example, the rising global popularity of SUVs (which are around 25% less fuel efficient than a standard car) has nullified much of the reduction in emissions from growing EV sales. Indeed, SUVs rank among the top causes of energyrelated CO2 emissions growth globally over the last decade. SUV ownership is highly unequal: in 2021, almost five times more SUVs were sold per capita in advanced economies than in emerging and developing economies. The IEA models both behavioural changes and sustainable consumption choices in its energy transition scenarios:

Behavioural changes

This refers to active and ongoing changes in energy use by consumers which tackle

Trading of costlier power to begin in March

Coal Insights Bureau

Trading of ‘High Price’ electricity is set to begin in March at the DayAhead Market of India Energy Exchange (IEX) following approval of the Central Electricity Authority (CEA).

In August 2022, the Power Ministry floated a discussion paper proposing to allow High-Price Day Ahead (HP-DAM) market as imported coal and gas prices touched newer highs.

IEX then filed a petition in November for starting such an exchange.

“We are expecting to start this market by February 2023,” IEX officials told analysts last month during a conference call.

“Sellers with variable costs greater than the price cap of spot of I-DAM market, i.e `12/unit will be allowed to sell power in this market. These can be gas-based power plants, imported coal-based power plants or any other entity that meets the variable cost criteria,” the discussion paper mentioned.

The government has decided to introduce such a segment because of high prices of gas and imported coal.

Currently, electricity prices at IEX spot market can’t go beyond `12 a unit as a price cap is in place introduced by the Central Electricity Regulatory Commission (CERC).

For this, generators having higher variable costs can’t participate in the market.

“In this background, it is proposed to introduce a High Price Market Segment (HP-DAM),” a discussion paper on the introduction of HP-DAM issued in August 2022 said.

“This will enable high-cost power plants to be made available during the high demand period. Only such buyers who are in deficit and can afford to pay high price will be able to participate in this segment. The other

buyers and customers will not get affected,” it added.

Electricity trade grows 7% in January

The total electricity volume on IEX in January touched 8245 Million Units (MU), an increase of 9 percent on y-o-y and 4 percent m-o-m.

“In January 2023, the exchange witnessed its highest volume in this fiscal year, due to improving supply side conditions, led by gradually increasing coal supply and easing e-auction coal prices. The volume has been steadily increasing month-on-month since November 2022. Improving coal inventory at power plants due to the Government’s proactive initiatives, is expected to lower clearing price on the Exchange in the coming months,” IEX said.

This, IEX said, will provide further cost optimisation opportunities to Discoms and Open Access consumers, resulting in higher volumes on the exchange.

According to the power demand data published by the National Load Dispatch Center, the energy met in the country during January 2023 was at 126 billion Units (BU), increasing 13 percent on y-o-y basis.

Coal supply improvement to drive down power prices

Continuing high spot e-auction coal prices led to the average clearing price in the DayAhead market at `4.56 in Q3 of FY23, although lower from `5.40 in the previous quarter as coal auction prices eased.

According to Satyanarayan Goel, Chairman cum Managing Director, IEX, availability of coal in the e-auction market is still low which is keeping e-auction prices at 240-250 percent of the administered price.

“At these prices the variable cost is `5-

plus, so generators cannot sell power at a rate lower than `5.25-`5.50 and that is why our clearing price is still high. But I’m sure going forward, when coal production improves, availability in the e-auction market where e-auction price was only 35 percent premium in FY22, it should come down to that level. And when that happens, you will see our clearing price coming down to `3.5 to `4.0 and the volume should also increase with that,” Goel told analysts.

“Improving coal inventory and further reduction in e-auction coal prices is expected to result in a decline in power prices on the Exchange and provide further cost optimisation opportunities to Discoms and Open Access consumers. This will result in higher volumes on the Exchange,” he added.

“Improving coal inventory and further reduction in e-auction coal prices is expected to result in a decline in power prices on the Exchange and provide further cost optimisation opportunities to Discoms and Open Access consumers.

This will result in higher volumes on the Exchange,” Satyanarayan Goel, Chairman cum

Managing Director, IEX

South Africa suffers major power crisis, deficit to go up

South Africa is in the midst of a major power crisis with electricity supplier Eskom being forced to implemented intermittent ‘loadshedding’ since January as fear of blackout loom of the nation.

The current crisis wasn’t wholly unexpected as Eskom has been grappling with deep structural and maintenance problems in its current and ageing fleet of generators, which are on average 45 years of age this year, which is in the context of the typical 50 years design operating life of a power station.

Power sector structural flaws

There’s no end in sight for the crisis to end anytime soon with the power deficit, currently estimated at 4,000 – 6,000 MW of generation capacity might go up as

performance of plants are likely to deteriorate further, Eskom has said.

“Eskom reiterates that the only way to end loadshedding is to add additional capacity. The shortfall is currently estimated at 4,000MW – 6,000MW of generation capacity. This supply deficit can only increase as the current fleet gets on in years and its performance continues to deteriorate,” the company said.

“While the current shortage in generation capacity prevails, it is important that all users of electricity use electricity sparingly, particularly during the evening peak hours. The National Energy Crisis Committee (NECOM) are working with Eskom to implement demand management measures, including incentives for loadshifting, feed-in tariffs, and other efficiency measures. While these are being implemented, South Africans are urged to conserve energy by switching

off unnecessary lights, and being conscious of the cumulative impact of every Watt of electricity that can be saved,” Eskom said in an advisory to consumers.

The crisis started in October 2022 with the failure of the chimney system at its Kusile Power Station, which removed more than 2,000 MW of capacity.

“This, together with the planned extended outage of Unit 1 of the Koeberg Nuclear Power Station, are responsible for three stages of loadshedding. Eskom is making every effort to reduce the duration of these outages as much as possible.

The crisis, however, is unlikely to get resolved in the short term.

“We are working with urgency to resolve the generation capacity constraints and to reduce the loadshedding as soon as possible. The reality, however, is that resolving the problems impacting the performance of the

Coal Insights Bureau

Coal India’s PAT touches all time high

Coal Insights Bureau

Coal India Ltd’s (CIL) consolidated profit after tax (PAT) touched

`22,597 crores in the 9 months till December FY23, an all-time high, higher than even the full-year highest profit of `17,464 crores earned in FY19.

CIL’s PAT during April-December FY23 zoomed up by a strong y-o-y growth of 112 percent against `10,663 crores for the comparable period of FY22.

“It scaled up its profit to higher orbit despite capping coal prices for the past five years amidst rising input costs especially diesel and explosives,” the company said in a release.

CIL’s post tax profit during Q3 rose sharply to `7,719 crores, clocking a robust 69 percent growth. This is also a historic high for this period in any year till now. For the comparable quarter of FY22, CIL’s PAT was `4,557 crores.

The steep rise in profit came on the back of higher add-on over the notified price in e-auction sale of 14.65 million tons (mt) coal during Q3. Though auction volumes were lower by 44 percent in current fiscal’s Q3, compared to 26 mt in similar quarter FY22, higher premiums under the e-window helped CIL in cranking up sales by `2,341 crores.

The realisation per ton of coal was `5,046 under auction segment, in Q3 against `1,947 per ton for comparable quarter in FY22.

Consolidated sales break-up

The jump was `3,099 per ton or 159 percent. Volume sale of 158 mt and better average realisation under FSA resulted in a net impact of around `3,580 crore.

FSA sale increased by 13.2 mt in the Q3 of FY23 compared to 144.6 mt of previous fiscal’s Q3. Realisation per ton of coal under FSA category was `1,482 in Q3 FY23, an increase of 8.2 percent compared to `1,370 per ton of Q3 FY22.

The company’s net sales was up 25 percent year-on-year (y-o-y) to `32,429 crores compared to `25,991 crores of third quarter of previous FY. EBITDA rose by 91 percent for the nine-month period to `31,998 crores from `16,769 crores of same period in FY22.

Till nine months ending December FY23, CIL output logged 16 percent growth at 479 mt while supplies to coal fired plants expanded by 18.8 mt to 432.7 mt.

Imported coal cost falls marginally

Average cost of coal imported by CIL as a channelising agency has dropped marginally during the December quarter to `13,297 a ton from `13,529 a ton in September quarter.

Even then, its 2.5 times higher than `5,046 a ton from e-auction and 9 times more than `1,482 a ton earned from supplies under FSAs. Pricing of coking coal supplied by CIL during December quarter dropped to `9,949 a ton from `10,263 a ton in the September quarter.

E-auction pricing easing

Financial snapshot (consolidated)

E-auction realisation dropped from `6,061.51 a ton in September quarter to `5,046.08 a ton in December quarter. CIL sells 8-15 percent of its volumes each year in e-auctions at auction-determined prices, which are more correlated to international coal prices of similar grade.

E-auction pricing has been elevated in FY23, due to the global energy crisis as a result of the Russia-Ukraine situation and other sectoral factors.

Global coal prices have continued declining which will also pull down CIL’s e-auction realisations, with a lag of 2-3 quarters, analysts said.

Source: Company, Emkay Research