Output could rise 5-8% CAGR between FY14-17 & FY18-24 against 1.6% in FY10-14
Amongst several issues faced by the Indian power generation sector, at least coal production seems to be improving; a mining analyst expects Coal India’s production CAGR to improve to 5% over FY14-17 vs 1.6% over FY10-14. India’s real challenge is not shortage of capacities but shortage of domestic coal. Despite an installed capacity of 243GW, only 130GW was generated in FY14 (peak demand of 136GW). If Indian power generating utilities are mapped on a competitive matrix based on PPA signed and coal linkages, Tata Power, NTPC and NHPC stand out the best. Tata Power has an advantage over NTPC and NHPC due to adverse CERC regulation and execution challenges for the latter two.
Improving visibility on domestic coal production can re-rate the power sector: India’s challenge in addressing the power deficit problem is not shortage of installed capacity but availability of domestic coal. Despite installed capacity of 243GW as on March 2014 only 130GW out of the peak demand of 136GW was met. This is because India’s average PLF (plant load factor) for coal and lignite-based power plants was at 66% in FY14 vs 79% in FY08. Average PLF for gas-based plants (22GW) was even more disappointing at 25% in FY14. The lower PLF was on account of shortage of domestic coal and domestic gas.
Domestic coal production CAGR is likely to improve to 5% over FY14-17 and 8% over FY18-24 vs 1.6% over FY10-14 as construction of the key railway lines in Jharkhand, Odisha and Chhattisgarh, which has been a reason for lower coal production, could be expedited. Phase 1 of the Jharkhand line has received stage II forest clearance (FC) and 49% of the land is in possession. With the balance land likely to be received in two-three months and with a construction time line of two-three years, this line might be completed by FY17. The Odisha line awaits stage II Forest Clearance whilst forest land is yet to be acquired. If these are in place by November 2014, the Odisha line might be completed by FY18. Hence, volume benefits from the railway lines may begin from FY18 onwards, with volume CAGR of 8% over FY18-24 vs 5% over FY12-17.
Further, domestic coal production CAGR (compound annual growth rate) has also improved, with Coal India reporting a production of 34.6mt for June 2014 (up 6% y-o-y). Production growth for Q1FY15 was at 5.3% (vs 2.3% in FY14) and CIL’s key subsidiaries, MCL and NCL, reported a growth of 17% and 10% respectively. For August also, CIL reported an impressive production growth of 9.0% y-o-y. (July was a dismal at 0.7% y-o-y). A 5% CAGR over FY14-17 vs 1.6% over FY10-14 is expected.
Benign imported coal prices could act as a support until domestic coal production ramps up: Given the dismal production CAGR of Coal India, the share of imported coal to total coal consumption (primarily imported from Indonesia) has increased from 10% (50mt) in FY08 to 22% (169mt) in FY14. The sudden 15% y-o-y increase in installed capacities for power generation in FY12 coupled with flat domestic coal production in FY12, led to a 49% y-o-y increase in import of coal although coal prices had peaked in the Indonesian market in FY12. Consequently, the share of imported coal to total demand increased from 11% in FY11 to 22% in FY14.
However, coal prices are unlikely to decline significantly from hereon. Miners in Indonesia suggest that capital expenditure for new mine capacities in Australia and Indonesia has reduced significantly, which may lead to tight supply in CY16 and CY17. If demand recovers (from India and China) then the prices of imported coal in Indonesia could shoot up. Further, prevailing prices are very close to the production cost.
Amongst several issues faced by the Indian power generation sector, at least coal production seems to be improving; a mining analyst expects Coal India’s production CAGR to improve to 5% over FY14-17 vs 1.6% over FY10-14. India’s real challenge is not shortage of capacities but shortage of domestic coal. Despite an installed capacity of 243GW, only 130GW was generated in FY14 (peak demand of 136GW). If Indian power generating utilities are mapped on a competitive matrix based on PPA signed and coal linkages, Tata Power, NTPC and NHPC stand out the best. Tata Power has an advantage over NTPC and NHPC due to adverse CERC regulation and execution challenges for the latter two.
Improving visibility on domestic coal production can re-rate the power sector: India’s challenge in addressing the power deficit problem is not shortage of installed capacity but availability of domestic coal. Despite installed capacity of 243GW as on March 2014 only 130GW out of the peak demand of 136GW was met. This is because India’s average PLF (plant load factor) for coal and lignite-based power plants was at 66% in FY14 vs 79% in FY08. Average PLF for gas-based plants (22GW) was even more disappointing at 25% in FY14. The lower PLF was on account of shortage of domestic coal and domestic gas.
Domestic coal production CAGR is likely to improve to 5% over FY14-17 and 8% over FY18-24 vs 1.6% over FY10-14 as construction of the key railway lines in Jharkhand, Odisha and Chhattisgarh, which has been a reason for lower coal production, could be expedited. Phase 1 of the Jharkhand line has received stage II forest clearance (FC) and 49% of the land is in possession. With the balance land likely to be received in two-three months and with a construction time line of two-three years, this line might be completed by FY17. The Odisha line awaits stage II Forest Clearance whilst forest land is yet to be acquired. If these are in place by November 2014, the Odisha line might be completed by FY18. Hence, volume benefits from the railway lines may begin from FY18 onwards, with volume CAGR of 8% over FY18-24 vs 5% over FY12-17.
Further, domestic coal production CAGR (compound annual growth rate) has also improved, with Coal India reporting a production of 34.6mt for June 2014 (up 6% y-o-y). Production growth for Q1FY15 was at 5.3% (vs 2.3% in FY14) and CIL’s key subsidiaries, MCL and NCL, reported a growth of 17% and 10% respectively. For August also, CIL reported an impressive production growth of 9.0% y-o-y. (July was a dismal at 0.7% y-o-y). A 5% CAGR over FY14-17 vs 1.6% over FY10-14 is expected.
Benign imported coal prices could act as a support until domestic coal production ramps up: Given the dismal production CAGR of Coal India, the share of imported coal to total coal consumption (primarily imported from Indonesia) has increased from 10% (50mt) in FY08 to 22% (169mt) in FY14. The sudden 15% y-o-y increase in installed capacities for power generation in FY12 coupled with flat domestic coal production in FY12, led to a 49% y-o-y increase in import of coal although coal prices had peaked in the Indonesian market in FY12. Consequently, the share of imported coal to total demand increased from 11% in FY11 to 22% in FY14.
However, coal prices are unlikely to decline significantly from hereon. Miners in Indonesia suggest that capital expenditure for new mine capacities in Australia and Indonesia has reduced significantly, which may lead to tight supply in CY16 and CY17. If demand recovers (from India and China) then the prices of imported coal in Indonesia could shoot up. Further, prevailing prices are very close to the production cost.
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