Falling Coal Inventory At Thermal Plants Resulting In Rising Electricity Prices At Exchanges

By Dr Rajib K Mishra

Executive Director, Integrated Research and Action for Development (IRADe)

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Several thermal power plants are facing critically low coal inventories. Flooding in coal mines, lower hydro and wind generation, and higher thermal demand have contributed to the situation. Of the 190 monitored plants, 74 reportedly had critically low coal stocks, up from around 51 in August.

At the same time, Coal India reportedly held around 76 MT of coal at pitheads. The gap between mine stocks and plant inventories points to challenges in coal positioning, logistics and power-system resilience.

India’s electricity system is facing an important warning. While coal remains available at mines, less of it is reaching thermal power stations when needed. Day-Ahead Market (DAM) prices have remained elevated and repeatedly touched the ₹10 per kWh ceiling.

Coal stocks at thermal power stations fell from around 29 MT at the end of August to 22.9 MT by September 19, a decline of about 21% in less than three weeks.

Stocks were sufficient for only around seven days of generation and stood at just 39% of normative inventory. The figures highlight the difference between coal available at mines and coal available at power plants.

September saw a combination of high temperatures and below-normal rainfall. Electricity demand reportedly rose 17.6% year-on-year during the first 13 days of the month, while peak demand reached around 269 GW on September 10. Coal-based generation increased by about 13% year-on-year in August.

Between April and August, thermal plants consumed around 395 MT of coal, about 8% more than a year earlier. Average daily coal requirement also rose from roughly 2.97 MT to 3.10 MT. Meanwhile, hydropower generation was around 11% lower than the corresponding period last year.

Do We Need to Produce More Coal?

The approximately 76 MT of coal reportedly available at Coal India pitheads offers an important perspective. With thermal plants holding around 23 MT while much larger stocks remain at mines, the immediate challenge may not simply be coal production.

The issue is also about where coal is located and how quickly it can reach power stations. Rake loading for the power sector reportedly increased from around 370 to 444 rakes in early September.

Power utilities have also increased coal imports, which reached around 5.52 MT in August, about 86% higher than a year earlier. Imports can provide relief but expose the sector to international prices, freight costs and currency risks.

Electricity Prices Reflect the Tightness

The pressure is also visible in power exchanges. On August 31, when thermal plant coal stocks stood at around 29 MT, the average DAM price on the Indian Energy Exchange was approximately ₹5.39/kWh. By September 17, stocks had fallen to around 23.4 MT, while the average DAM price rose to approximately ₹8.73/kWh.

A preliminary comparison of six coal-stock and DAM observations between August 31 and September 21 showed a correlation of around -0.83.

This does not establish that falling coal stocks caused higher electricity prices. Demand, renewable generation, hydro availability, outages, transmission constraints and bidding behaviour can also influence prices.

On September 17, IEX recorded around 1.265 million MWh of purchase bids against only 0.155 million MWh of sell bids. The average DAM price reached ₹8.73/kWh, while the maximum touched the ₹10/kWh ceiling. The figures indicate tightness in the short-term electricity market.

Repeatedly reaching the ₹10 ceiling creates another challenge because the regulated cap limits how clearly market prices reflect scarcity. Regulators and system operators should therefore monitor the frequency and duration of 15-minute trading blocks near the price ceiling, rather than relying only on average daily prices.

National coal inventories can also hide plant-level risks. Two fleets may hold the same 25 MT of coal, but their reliability risks could differ significantly if one has evenly distributed stocks while the other has several major plants with only two or three days of inventory.

A capacity-weighted measure showing how many gigawatts of thermal capacity operate with critically low coal stocks could therefore provide a clearer picture of fuel stress and electricity-security risks.

Coal Resilience Framework

India already has much of the data needed for a more integrated approach. The CEA, Grid-India, Ministry of Coal, Railways, Coal India and power generators could combine information on plant inventories, coal in transit, rake availability, expected coal consumption, replenishment times, demand forecasts and renewable generation.

Such integration could support a Coal Resilience Framework with a plant-level early-warning system. If demand forecasts indicate a heatwave, renewable output is expected to fall and key thermal plants are simultaneously reducing inventories, logistics could respond before stocks reach critical levels.

One Energy System, Not Separate Silos

September’s experience highlights the need to view coal production, railway logistics, power-system operations and electricity markets as parts of one continuous chain. Coal production translates into reliable electricity only when logistics deliver sufficient supplies to the right plants at the right time.

As renewable energy expands, dispatchable generation and storage will remain important during evening peaks, periods of low renewable output and sudden demand increases. The objective should not be excessive coal stocks everywhere, but the right quantity at the right generating station at the right time.

September’s experience provides an opportunity to modernise India’s approach to coal and power security. The focus should shift from asking how much coal India has to whether coal is available at the right plants, in the right quantity and at the right time.

A digital logistics platform linking mine production, railway rakes, dispatch, coal in transit, plant inventories, generation schedules and electricity-market conditions in near real time could provide early warnings and enable proactive coal allocation. AI-enabled forecasting and logistics optimisation could further strengthen reliability, market liquidity and price discovery.

The views expressed are personal.