Coal prices all time high.. How it affects India’s, electricity prices?

International coal prices are trading at over $400/MT; which is an all-time high. This has a cascading effect on the Indian electricity market. The electricity prices are at an all-time high. We are getting an upper circuit on the IEX at Rs. 12/kWh for the spot electricity prices. Due to the Ukrain war, the gas prices are also all-time high and in recent months the electricity demand has also increased by over 20% as compared to the last year. Outages in coal-based power plants have become a common feature, and there is no short-term solution to this problem. The hydroelectricity is also not fully until we get rainy season. The market may ease out once we enter the rainy season and get the supply from hydropower plants. Though solar and wind contribute to about 10% of the country’s energy demand, there has been a slow down in capacity additions due to the increasing module prices.

Indian coal-based power producers have been buying Indonesian and Australian coal, and increasing international coal prices have made it difficult for them to be unsustainable at this price point. Coal India produces about 700 million tonnes of coal and we import about 200 million tonnes of coal every year. The electricity tariff on IEX was at an all-time high in April at over Rs. 10/kWh, and has eased out to the tune of Rs. 6/kWh in this month. While much of our energy supply (about 70%) is from coal power plants, we will be facing not only frequent grid outages but also the electricity tariff from Discoms is also going to increase in near future.

We are yet to see the reflection of the increased cost of Discom’s in our electricity bills. However, the rooftop solar market may see a significant increase due to the shift of high-paying consumers from residential, commercial, and industrial switching toward solar power generation.