Fitch Ratings said India’s power generation companies could be adversely affected by coal shortages, which are likely to persist.
Salil Garg, director in Fitch’s energy and utilities team, said: “Coal demand has increased significantly with the commissioning of new coal fired generation capacity. This trend is likely to continue. A lower-than-expected increase in domestic coal production has added to the demand-supply gap.”
The increasing dependence on imported coal is a challenge for India. First, the price of imported coal is higher than domestic coal. Secondly, weak coal transportation infrastructure between ports and power plants can lead to supply shortages.
Thirdly, boilers are designed for a particular coal quality range, and deviations adversely affect performance and efficiency. Finally, coal exporting nations such as Indonesia and Australia, have been looking at policy actions that might restrict exports or increase the export price.
Fitch notes that the increase in the coal fired generation sector’s risk profile has led to a reduction in investor interest and higher target investment returns for new power plants.