Coal Insights, July 2019

Contents 19 Thermal coal offers show volatile trends in July 20 Seaborne coking coal offers plunge in July 21 India’s May coal imports up 12% y-o-y 22 CIL’s coal production up 0.5% in June 23 SCCL’S June coal production up 15.1% y-o-y 24 Anti-dumping duties, PPA renegotiations to slow down solar industry 26 No power capacity addition during May 28 June sponge iron production up 7.1% y-o-y 29 Potential of Methane economy: Gateway Report 29 India’s cement production up 2.8% in May y-o-y 30 Government Update 34 Traffic handled by major ports up 1.5% till June 35 IR’s coal handling in June up 3.4% y-o-y 38 BHP to invest $400 million to address climate change 39 First Lignite-to-Hydrogen project kicks off in Australia 41 US coal consumption seen at 684 mmst in 2019 42 Commercial mining, CIL arms listing on govt agenda 45 NTPC to start production from Talaipalli block by December 46 Govt calls bids for 4,000MW Deoghar UMPP 48 Country to become power deficit after 2 years: JSW 49 Corporate Updates 54 E-auction data 56 Port data

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6 | COVER STORY

Power Sector: Challenges before private producers and state Discoms A comprehensive look at the state of power sector of the country

17 | COVER STORY Power capacity to grow by 6% till 2028: Fitch Ratings Strong consumption growth, broad policy continuity to drive capacity addition

36 | INTERNATIONAL Moody’s sees India most hurt due to climate change Temperature rise to push up household electricity demand in hot countries

43 | CORPORATE All Coal India arms turn profitable Networth jumps 30% as subsidiaries contribute to bottomline

51 | EXPERT SPEAK

“Global Energy Interconnection to create global smart grid” RN Sen, former chairman, WBERC makes a case for China promoted Ultra High Voltage smart grid

Cover Story

Powering India: A reality check Sumit Maitra

6 Coal Insights, July 2019

Cover Story

T

he only irreversible trend in the global energy market is, perhaps, the everincreasing demand for electricity.

With the growth of digital technologies as well as consumer demand for cooling and electric vehicles, there is every reason to believe that this trend will intensify further in coming years.

In line with this overall growth in demand, coal-based power generation capacity in India, which currently stands at 190 GW, is expected to reach 330-441 GW by 2040.

However, the dominance of fossil fuels is expected to come down significantly, with the Government of India setting a roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power.

Challenges before the power sector

Over the past few years, India has transformed itself from a power deficit country to an exporter of power by adding 100,000 MW of generation capacity and more than 100,000 circuit kilometer of transmission turning the whole country on one grid at one frequency seamlessly transmitting power from one place to other place.

Having strengthened the distribution system, the country is now in a position to achieve the target of 24X7 power supply to all households.

Under the UDAY scheme, the burden of debt on distribution companies (Discoms) has come down significantly. In fact, the combined losses of Discoms have dropped from `54,000 crore to `17,000 crore in last two years. And, to achieve the target of 24X7 power to all households, 25 million households have been electrified in 15-18 months under the Saubhagya scheme.

Yet, a lot more is yet to be done, including the unresolved issue of stressed power plants and not so satisfactory performance of the UDAY scheme.

A meeting between the power ministry and states held earlier chalked out the following challenges before the sector: 1. Providing 24X7 power supply to all: From April all states are supposed to ensure 24X7 power supply to all consumers except agriculture consumers.

For agriculture consumers, supply duration can be 8-10 hours a day, to conserve ground water.

2. Challenge of meeting increased electricity demand: After electrifying more than 25 million households the demand for electricity is bound to increase. This will further increases during summer months.

3. Making Discoms viable: The sector can be sustained only if Discoms remain viable.

4. Improving standards of service: Service standards to be laid down by all Discoms for providing reliable quality power supply to all consumers.

5. Implementing new environment norms: In view of the Supreme Court order, new environment norms are to be implemented in all generating plants by the year 2022 in a phased manner.

6. Higher share of renewable energy: The country has pledged to have 40 percent of installed capacity by non-conventional sources by 2030. The government has also set a target of 175 GW of RE capacity by year 2022. Even with high RE capacity, Coal power is going to be there to provide reliable supply of power, which is the first priority for the government.

Nearly 72 percent of the entire power generated in the country is coal based, which signifies the country’s dependence on fossil fuel.

Coal India claims that it significantly improved supplies to power plants stating that at the beginning of FY19, “not a single coal fired power station in the country that was in critical or super critical condition for want of coal”.

“Notwithstanding the extraneous factors, CIL is committed to increase its coal supply and meet the coal demand in the country with a pledge to do better on all fronts and make a difference,” Coal India says in its annual report.

Situation has deteriorated a bit since then.

The number of thermal power plants at sub-critical level of coal went up to five in June 2019 from zero in March though the situation is comparatively better than June 2018, when the number was 15.

This has pushed up coal imports by 28 percent on year to 5.7 million tons in June 2019 and by 41 percent in the first quarter.

“Coal supplies are not what it seems. If Coal India is confident of meeting power

sector’s demand, why the trigger level in a Fuel Supply Agreement (FSA) is set at 75 percent of the annual contracted quantity?

With Annual Contracted Quantity at 90 percent of requirement and assured supply of 75 percent of ACQ, it is sufficient to generate only 57 percent of Plant Load Factor (PLF),” says Ashok Khurana, Director General of Association of Power Producers.

The trigger point in an FSA is the minimum commitment to supply coal to a consumer, below which Coal India is supposed to pay penalty.

Stress in power sector

The total stressed capacity in the thermal power sector stands at a whopping 40,130 MW, which includes commissioned capacity of about 24,405 MW and under-construction capacity of about 15,725 MW. The major reasons for stress in this sector are: yy Non-availability of fuel yy No PPA tie-ups yy Delayed payments by Discoms yy Inability- infuse equity, service debt yy Aggressive tariffs by bidders in PPAs yy Regulatory/ contractual disputes yy Legal Issues- auctioned coal mines Other financial issues include noncompliance of Joint Lender Forum (JLF) decisions, RBI restrictions on funding of cost overrun, etc.

Some of the actions taken for resolution of stress are: yy S hakti scheme: To provide assured supply of coal through allocation and auctioning yy Pilot scheme to procure 2500 MW yy A mendment in Mega Power Policy: Competitive bidding for future PPAs, Remove liquidity crunch with developers and ensuring project competitiveness Steps by lenders include Debt Recovery Tribunal, formation of Joint Lender Forum and insolvency resolution steps at the NCLT through IBC Act, 2016.

Reserve Bank of India in June revised stressed asset resolution framework for early recognition and resolution of stressed assets after the Supreme Court quashed its February circular in April.

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Cover Story

Power capacity to grow by about 6% till 2028: Fitch

companies, will also threaten India’s power expansion plans.

That said, the government is addressing a number of key structural challenges focusing on easing fuel shortages and grid bottlenecks, which will alleviate these pressures going forward and allow for the continued expansion of the sector.

Fuel Shortages

Coal Insights Bureau

D

omestic electricity capacity is likely to increase by an annual average of 5.9 percent between 2019 and 2028, totaling just under 625GW by 2028, global research agency Fitch says in its recent report on the power sector.

“We believe that strong power consumption growth stemming from a buoyant economy (in particular construction and manufacturing sectors), provides the necessary stimulus for the development of greater power capacity,” the Fitch report says.

Given Prime Minister Narendra Modi’s re-election, the global rating agency expect broad policy continuity and for the power sector to continue to be a key focus for the administration.

“As highlighted in the new Vision 2024 document, the government remains committed to improving fuel supply to power generators, expanding renewable energy into the power mix and improving transmission capacity,” it says.

Despite several downside risks to project realisation and pressures on operating profitability, the government is focusing on easing fuel shortages and grid bottlenecks, which will alleviate these pressures going forward, the report notes. Here are the key excerpts from the report: Sector stress

“We note that that the financial stability of companies operating in the market has deteriorated over recent years, heightening the risk that an increasing number of power generation assets become stressed. Many power plants are running at low plant load factors, due to grid bottlenecks or feedstock supply shortages, meaning losses for some power producers. Adding to this, continued reliance on imported coal for power generation (as domestic supply falls short at present), coupled with a weakened rupee, has increased generation costs for power producers. Significant debt levels, particularly among the power distribution

We believe fuel supply shortages for coal and gas power plants will ease over the coming years, thanks to the increasing the availability of feedstock. The government is looking to liberalise the coal mining sector, and we have seen state-run Coal India trying to boost their mining activities and increase coal supplies.

Concurrently, India has also been trying to increase natural gas production, and has achieved some success in recent years.

The construction and gradual commissioning of several new LNG import terminals on the east coast of India will also further support gas usage in the pent-up demand centres in the east of the country, and allow some stranded gas power projects in the east of the country to come online.

At present all four of India’s operational LNG import terminals are located entirely on the west coast of the country and poor connectivity of domestic gas infrastructure continues to prevent adequate supply from reaching demand in the eastern states.

T&D Bottlenecks

We note that there has also been increased attention to improve India’s grid infrastructure and the transmission and distribution (T&D) segment, via recent large tender launches and ongoing support from international financial institutions such as the World Bank and Asia Development Bank.

Most notably, the recent National Electricity Plan (Vol II) established specific policy directions and government support to develop the transmission systems in the country, and attract more private investment into the sector.

The new Vision 2024 document also highlights the T&D segment as one of the key goals for the power sector over the next five years, including the need for improvements and modernisation, and integration of renewable energy.

Coal Insights, July 2019

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Corporate

All Coal India arms turn profitable - Networth jumps 30%

Coal Insights Bureau

I

n a major feat, all the subsidiaries of Coal India has earned positive bottomline in FY19, the just released annual report of the state-owned coal miner has said.

As per financial data revealed in the annual report of the consolidated entity, subsidiaries like Eastern Coalfields, Bharat Coking Coal and Western Coalfields, which suffered losses in FY18, have all posted profit in FY19 (See chart below).

Networth jumps

With all the subsidiaries of Coal India turning profitable in FY19, Coal India’s networth has gone up 30 percent to `26,435 crore from `20,159 crore.

“For the FY19 Net-worth of the company stood at `26435.04 crore as against

`20159.53 crore in FY18 mainly due to increase in Profit. Hence, Net-worth to equity capital increase to 4.29 times in FY19 as against 3.25 times in FY18,” Coal India has disclosed in its annual report.

Future Outlook

Based on the demand projection in ‘Vision 2030’ for coal sector in the country and subsequent demand projection on CIL, a Perspective Plan has been prepared to project production plan in medium and long term basis up to 2030-31 wherein CIL has envisaged to grow at the rate of about 7.6 percent till FY25 to meet the coal demand of the country.

The capital expenditure for FY20 has been set at `10,000 Crores with significant investment plans in diversification projects like solar power, revival of fertilizer plants

acquiring coking coal assets in Australia and Canada, coal gasification, CBM, rail wagon procurement during the year.

Status of Ongoing Projects

A total of 120 coal projects costing `20 Crores and above are in different stages of implementation out of which 66 projects are on schedule and 54 Projects are delayed.

“The major reasons for delay in implementation of these projects are due to delay in obtaining EC, FC, possessions of land and issues related to R&R, contractual issues and evacuation facilities,” Coal India has said in its annual report.

Projects completed in FY19

Altogether 5 coal projects, with a sanctioned capacity of 11.07 million tons and sanctioned capital of `989.43 crores have been completed

Coal Insights, July 2019

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EXPERT SPEAK

Global Energy Interconnection for sustainability and energy security

At a time when the global energy sector is engaged in a fierce debate over the continued hegemony of fossil fuels and the viability of clean energy projects, a new concept of global energy connectivity is emerging which, if fructified, may help realise the dream of having a carbon-free energy matrix.

Rabindra Nath Sen

G

lobal Energy Interconnection is a concept promoted by China for the establishment of Global Energy Interconnection (GEI) system, to cater to the global demand for electricity in a cleaner and greener fashion.

GEI vision is to create globally interconnected smart grid with Ultra High Voltage (UHV) transmission system as the backbone and will serve as a platform for extensive development, deployment and utilisation of clean energy with an underlying principle of accelerating energy transition and realising efficient, low-carbon, and sustainable development of global energy.

In order to realise this concept, China set up Global Energy Interconnection Development and Cooperation Organisation (GEIDCO) in 2015 (www.geidco.org).

Today, GEIDCO has over 800 organisations as members from 61 countries. GEIDCO organised the first annual conference in 2017. The Second GEI Conference was held on March 2829, 2018 in Beijing and the theme was ‘Global Energy Interconnection: from China’s initiative to Global Action’. The objective of the conference was to bring together experts from different parts of the world for knowledge exchange and discussion on global energy connectivity in the fields of policy coordination, technology development, project deployment, and also to launch a series of cutting-edge technology and research achievements from all over the world.

The conference witnessed participation of over 900 experts from 31 countries including governments, international organisations, universities and research institutes, energy enterprises, equipment manufacturers, financial institutions.

GEIDCO is headed by Chairman Liu Zhenya who was previously the President of State Grid Corporation of China (SGCC).

GEIDCO has a staff strength of about 200 and is headquartered in Beijing.

GEIDCO believes that with Global Energy Interconnection, the present international energy order of confrontation and competition will be changed to a new era of open cooperation and interconnection for mutual benefits.

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58 Coal Insights, July 2019

Tear along the dotted line

Tear along the dotted line