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Aug’21 demand spike raises IEX rates; NTPC coal stocks improve

The sudden surge in power demand in latter half of Aug’21 led to all India power plant coal stocks falling to 3-4 days (including NTPC) vs. various power plants falling.Generally, 2Q is a seasonall weak demand period for thermal power given rainfall driven hydro generation, while thermal thermal plants go into maintenance shutdowns. Also coal supply typically is weak given seasonal rainfall led hinderances to mining activities.

The Aug’21 demand spurt was led by a) upto 50% shortfall in rainfall in western India - mainly Gujarat, which added to irrigation led power demand in Aug’21 as thermal generation grew +21% YoY, while b) seasonally weak coal supply from WCL/SECL mines led to depleting coal stocks. This demand supply mismatch led to IEX (power exchange) prices spurting to INR 9.8/kWh in Aug’21 end (vs INR 2.4 in July’21 end).

JM View: Our interactions with NTPC officials suggest that none of its plant have suffered generation loss due to coal shortage despite low stocks as they have been circulating coal from high coal stock plants to those with no stocks.Addtionally with monsoon season nearing its end, the demand spike is flattening (IEX prices fall to INR 5/kWh from peak of INR 9.8/kWh) and coal stocks at power plants are improving.

CEA data suggests that NTPC plant coal stocks are now improving in Sept’21.While this short term spurt in IEX (merchant) prices may benefit merchant players like JSW Energy it may be marginal given its imported coal based merchant plants face peak costs of $110-120/T. On the other hand we believe such abberation in demand will encourage Discom to reduce reliance on exchange for power puchases and could open up the PPA market for more medium term contracts (postive for CESC who have domestic coal based open capacities).

* Aug’21 power generation surged 16% YoY (low base on partial lockdowns last year) and 6% on 2 year CAGR basis (Exhibit 1). The demand spike is led by irrigation demand in Gujarat which suffered a fall of 50% YoY, in Aug’21(Exhibit 2-3).

* IEX price spike to INR 9.8/kWh on demand-supply mismatch: Seasonally, thermal PLF’s remain subdued during in 2Q as Hydel generation picks up due to monsoon season (Exhibit 4). However, the demand spike in Aug’21 led to thermal PLF’s of 51% (vs 45% in Aug’20), led to coal stock depleting across thermal plants. This lead to IEX prices surging to INR 9.8/kWh on 30th Aug’21, vs. INR 2.4/kWh in July’21, (Exhibit 5).

* NTPC plant coal stock at 3-4 days; But no generation loss: While NTPC plant level coal stock is 3-4 days as of 3rd Sep’21 (Exhibit 8), no plant has suffered power generation loss. Our interactions with NTPC officials suggest that a) demand is flattening while coal supply is improving as reflecting in IEX prices falling to INR 5.2/kWh vs. peak of INR 9.8/kWh on 28th Aug’21, b) Although 2GW of its capacity (1-unit each at Unchahar, Simhadri and Dadri) had shutdown temporarily due to coal shortage all of these are now operational / expected to restart within 2-4 days on improved coal supply,

c) low coal stocks across NTPC plants is mainly due to rebalancing of coal from pit head / high stock plants to low stock / rail based plants resulting in almost all plants having at least 2-5 days of coal vs having zero stock in some plants and high stock in others, d) high power demand scenario is expected to iron out in next 10-15 days as many thermal / nuclear plants that are typically under shutdown in lean monsoon season will also come back into operations.

NTPC management is confident of no coal related under recoveries given adequate coal stocks maintained across plants in Aug’21 end, while coal supply situation is now improving in Spet’21. We see evidence of improving coal stocks at NTPC plants as per CEA/NPP coal stock data of Sept’21 (Exhibit-6).

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