India’s aluminium producers are drawing expensive power from the national grid, adding to pressure on utilities with low coal stocks as state-run Coal India COAL.NS curbs supplies, the Aluminium Association of India (AAI) told Reuters.

A crippling shortage across the country has pushed state-run Coal India COAL.NS to impose temporary supply curbs to non-power consumers, including the energy-intensive aluminium industry, pushing producers to draw electricity from the grid.

Indian aluminium producers such as Hindalco Industries HALC.NS and Vedanta Ltd VDAN.NS largely use power generated from so-called captive power plants, which produce electricity solely for self-use and are not connected to the grid.

AAI estimates aluminium production annually accounts for 5-6% of India’s total power demand met through the national grid.

“Since we are going to the (national) grid, that increases power demand in the country and puts further pressure on coal plants which already have low fuel,” AAI told Reuters in a statement.

India produces over 70% of its electricity using coal, and Coal India – the world’s largest coal miner – accounts for over four-fifths of the country’s output.

Electricity use in India’s eastern Odisha state, which accounts for over half of India’s aluminium smelting capacity, rose 25% during the first half of October, government data showed, growing over five times faster than the national average.

Aluminium producers say fuel procurement challenges were being exacerbated by Coal India’s decision last week to cancel auctions and curtail supplies under long-term contracts.

“Under long-term fuel supply agreements, we were getting full supplies in June, in September that reduced to 60% and in October we are getting as low as 50%,” AAI said.

Long-term fuel supply agreements with Coal India have historically accounted for a majority of domestic supplies to the industry, with auctions conducted by the miner accounting for the rest.

However, Coal India denying extension to five-year agreements with non-power consumers which ended this year, and some aluminium companies cancelling long-term agreements last year have increased dependence on auctions, AAI said.

Coal India said on Tuesday it was temporarily prioritizing the power sector to replenish dwindling coal stock.

“Normalcy will be restored very soon,” the miner told exchanges.

The AAI said some companies cancelled long-term contracts as coal was available for lower prices last year when coronavirus cases were high.

“We are desperate for coal. Sustaining operations will now depend on how Coal India reacts in the next ten days,” AAI said.
Source: Reuters (Reporting by Sudarshan Varadhan; Editing by Bernadette Baum and Emelia Sithole-Matarise)