Coal Fuel Switching: 18.31 MT Imports Expose India's Cost Risk

Coal fuel switching is emerging as a challenge for India’s power sector, even as the country reduces its dependence on overseas supplies.

Coal imports by imported-coal-based power plants increased by 0.98 per cent to 18.31 million tons (MT) in August 2026, from 18.13 MT a year earlier, while total coal imports declined 5.83 per cent to 104.57 MT, according to the Ministry of Coal.

Imports for blending at domestic-coal based plants fell 35.23 per cent.

The contrasting trends highlight how plant design, fuel quality and operating economics can complicate domestic substitution, raising questions about conversion costs and electricity prices for generators.

Why Are Imported-Coal Based Power Plants Facing Difficulty to Convert to Domestic Fuel?

India’s imported-coal-based thermal power plants face a different challenge from conventional domestic-coal-based stations.

These facilities were specifically designed around imported coal specifications, including calorific value, ash content and moisture levels.

The Ministry of Power has previously identified technical complications associated with blending domestic coal in imported-coal-based plants. These include reduced boiler efficiency, slagging, fouling and increased maintenance requirements.

This is where coal fuel switching becomes an equipment and engineering consideration. Power producers may need to evaluate boiler modifications, combustion-system compatibility and fuel-handling arrangements before increasing domestic coal consumption.

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How Could Coal Fuel Switch Affect Thermal Power Generation Costs?

The economic case for replacing imported coal extends beyond the difference in procurement prices. Domestic supplies could reduce exposure to international coal prices, ocean freight, insurance and currency-related fluctuations.

However, potential savings need to be evaluated against the cost of adapting existing power generation infrastructure such as boiler modifications, changes to coal mills, combustion adjustments and additional maintenance expenses.

Generators would also need to assess whether domestic coal can maintain the required heat output and operating performance. Consequently, coal fuel switching could create a trade-off between lower fuel procurement expenses and higher equipment adaptation or operating costs.

For electricity generators, the key question is whether long-term savings from domestic fuel can outweigh the initial investment and operational adjustments.

Can Coal India Limited and the SHAKTI Policy Accelerate Domestic Coal Substitution?

The government has already introduced measures to improve domestic coal accessibility for power producers. The Revised SHAKTI Policy 2025 expanded coal-linkage allocation, allowing imported-coal-based power plants to secure domestic coal.

Coal India Limited (CIL) and its subsidiaries have an important role in supporting this transition through domestic production, coal supply and transportation.

The Ministry of Coal has also been coordinating with the Ministry of Railways to strengthen coal evacuation infrastructure and improve delivery to power utilities.

Coal fuel switching will require coordination between coal producers, power generators and equipment operators to ensure that fuel quality, transportation and boiler performance remain compatible.

Will Lower Coal Imports Translate Into Cheaper Electricity?

The broader implications extend to electricity generation costs and consumer tariffs. Imported coal prices are influenced by international market conditions, shipping expenses and other procurement-related costs.

Greater domestic sourcing could reduce some of this exposure, but the financial benefits will depend on how efficiently power producers manage conversion and operating expenses.

The Ministry of Power has previously highlighted that electricity generation costs depend on coal prices, freight charges and the cost of imported coal used in blending. This makes fuel substitution economics particularly relevant for generators operating under long-term power purchase agreements.

For India's energy sector, the August import figures underline an important distinction: reducing discretionary imports for blending is different from replacing imported fuel at plants designed around it.