India Ratings and Research (Ind-Ra) believes that short-term power prices would continue to be determined by lower-than-required growth in domestic coal output. This could lead to increased reliance on imported coal. Thus, short-term power prices would remain range-bound at Rs 3.75-4.25/kWh in FY19 (FY18: Rs 3.25/kWh), according to Ind-Ra.

Ind-Ra had previously discussed the possibility of the electricity demand growing by 6.0%-7.0% in FY19 and the continued reliance on thermal-based capacity. In a series of market wires, Ind-Ra will cover the remaining factor contributing to the range-bound short-term power prices: imported coal price.

Given Ind-Ra's expectation of healthy power demand growth in FY19 and thermal-based capacity remaining the mainstay of power generation in India, domestic coal availability becomes a key determinant in deciding short-term power prices. If domestic coal production grows at a lower rate than the demand growth rate, the reliance on imported coal could go up. In such a situation, short-term power prices would be determined by the marginal cost of energy production undertaken using imported coal.

Domestic non-coking coal production and offtake increased at a CAGR of 4.0% and 3.9% over FY08-FY18 and at a CAGR of 2.1% and 1.9% over FY13-FY18, respectively. Even in the short term, coal production increased 4.98% yoy in 4QFY18. The details of non-coking coal production for 4QFY18 are not available.

To ensure higher domestic coal availability to power producers, the government has increased the share of coal allocation to the power sector by diverting a part from other sectors. This has led to higher coal availability for the power sector. The share of domestic non-coking supplied to the power sector increased to 91.0% in FY18 from 89.0% in FY17.

Although the current situation has been handled through diversion, continuing such diversion could be challenging in case of increased resistance from other sectors, which have been facing pro rata cuts. This has increased their reliance on imported coal.

Moreover, the specific consumption of coal by high-efficiency boilers has declined. The specific consumption of coal declined to 0.68kg/kWh in FY18 from 0.77kg/kWh in FY14, leading to lower coal utilisation for generating the same amount of power.

Furthermore, imported coal usage in the power sector declined to 56 million tonnes in FY18 from 80 million tonnes in FY14.