By Yuvaraj Mandal & Anushka Chib
Last year, Arvind Kejriwal had written a letter to Prime Minister Narendra Modi alerting him of the coal shortage in the capital, which could lead to a “power blackout”. Despite multiple assurances from central ministers, and precautionary measures in 2022, various cities echo Delhi’s condition as they face severe power outages amid the rising power demand and continued heat waves. While Rajasthan, Bihar and Jharkhand face power cuts for up to 14 hours, Maharashtra complains about insufficient quantities of coal being supplied by the Centre, halting production in various power plants. In fact, on October 6, 80% of India’s 135 coal-powered plants had under 8 days of supplies left.
As per the International Energy Agency (IEA), 70% of India’s power is generated by coal-based power plants and a drop in the level of the coal stocks in these plants naturally causes a massive power crisis in India. However, the current power crisis is a result of something more than dipping coal mining capacity: under-utilisation of power generators in the country, the global energy crisis, the inefficiency of railways, and other factors that we shall examine through the course of this article.
What are the factors behind this coal shortage?
Last year, in October 2021, some Indian coal plants and generation units had merely two days of inventory left. Although India was producing record quantities of coal in 2021, heavy rains created an impasse on the effective movement of coal from the mines to the thermal plants. While the Centre’s core management team (CMT) blamed the intense rainfall in mineral-rich states like Jharkhand and Odisha for lowering the production of coal, experts have brought out that the general inefficiency of railways aggravated the coal shortage.
BBC reports that due to the increased traffic of passenger trains and the absence of full-fledged freight corridors in India, coal transportation via wagons is hindered to a large extent. In addition, railways charge high tariffs for ferrying coal to compensate for losses from their passenger segment. This creates immense financial pressure on the already debt-ridden power industry.
Further, the Indian railways have recently admitted that they have exhausted their rake capacity while the coal stocks are still lagging at 39 per cent of the recommended levels. Hence, as a desperate measure, railways cancelled hundreds of passenger trains to enable quicker movements of their coal wagons.
Not only did this jeopardise the migration of workers across the country, but also showed the inherent lack of coordination between the power ministry, the railway ministry and the coal ministry. In fact, railways had proceeded to blame the coal ministry for its mismanagement in loading and unloading railway rakes.
If the ineffectiveness of transportation facilities is highlighted, the under-utilisation of thermal power stations in India is yet another factor behind this shortage.
As per the Centre for Science and Environment in 2021-22, 3.6 gigawatts of power capacity remained idle, 15.47 gigawatts of installed capacity generated less than 50 percent of its planned output and 44.9 gigawatts were operating at 50-60 percent of its capacity. This under-utilisation has multiple causes – the outdated technology in old power stations, bad financial conditions of distribution companies and a demand-supply mismatch.
The public power distribution companies (discoms) have accumulated losses of over five lakh crore rupees and yet they have to continue supplying electricity to consumers in accordance with political demands. Political authorities often compel the discoms to charge nominal rates from their customers or even supply electricity free of cost near the elections.
Clearly, non-payment of dues by discoms to the power generation units in turn makes them default on payments to Coal India Limited. As a result, private power generation units are severely cash strapped and do not possess the ability to import coal at higher international prices.
Although the power ministry has issued instructions to all power plants to import 10 percent of their coal requirement, the lack of cash flow for the private generation units has made it impossible for them to follow such instructions.
Nevertheless, the public generation units have also found it difficult to accommodate the import demands of the government as clearly depicted by the forced outage and planned maintenance of import-based plants since the coal prices peaked in the international market last year.
Fig 1 : Coal prices from 2010-2022
The primary reason behind the coal shortage is the high international prices of coal. The Ukraine-Russia conflict has decreased the coal supply in the world market, and western sanctions have further disrupted Russian coal exports.
While India does not import coal from Russia, the inflation in coal prices is having a cascading effect on the cost of high-grade imports from Indonesia, Australia and South Korea. Moreover, Indonesia had imposed a three-week blanket ban on coal exports in early 2022 for addressing its own domestic needs.
When India was facing a coal shortage in late 2021, the coal prices were still hovering around $226 per tonne. In March 2022, it reached a record high of $417 per tonne (as per the graph), which deepens the import woes of the Indian power generation units.
Coupled with the growing import bill of India and the low supply of coal, the high electricity demand in India worsens the ability of the state to bridge the existing gap between the market demand and supply.
As intense heat waves hit Northern India, and India reported its hottest pre-summer months in decades, the demand for electricity peaked. As per the Economic Times, India’s power demand had hit an all-time high of 207 gigawatts, up from the previous all-time high of 205 gigawatts, which was recorded just a day before.
The rapid reopening of the economy after covid-induced lockdowns has clearly resulted in, and will further sustain, these high energy demands in the near future.
What are the implications of the coal shortage?
Evidence suggests that the mismatch of demand-supply in the power sector will lead to an imminent stagflationary shock, which is an increase in inflation along with stagnation of output.
This is because if supply fails to meet the rising demand, power outages would increase and so would the diversion of coal from non-power sectors.
Other than increasing its production, government-run Coal India has reduced supply to non-power sectors like cement factories and steel mills. Other than this, the government is rationing its domestic supplies by load shedding and supplying power to certain areas on a rotational basis.
However, this will have a twofold implication. The commercial sector will suffer the most since it relies heavily on coal and coal-generated power for its functioning. Furthermore, small scale businesses might get crippled due to the erratic and inconsistent supply of power.
What are the immediate steps taken by the government?
To increase the availability of coal, ease the pressure on coal producers and aid coal import substitution, the government permitted all captive mines to sell 50 percent of their coal or lignite produced in a financial year. This shall incentivize coal producers to enhance production and also increase government revenues through royalties, premiums and statutory payments involved in the sale of coal and lignite.
As an emergency provision, India has also allowed power producers to use upto a 30 percent blend of import coal, instead of only coal, to improve their coal stocks until March next year. To ensure stable and seamless coal production, the government allows granting of a mining lease to a Government company for coal or lignite for a period of fifty years.
Since climate change-induced factors like erratic monsoons majorly impact the power sector of India, the government has taken measures to channelise this bane into a boon.
During the season of monsoon when coal production is hampered, hydroelectric power plants partially compensate for it. India currently has 207 hydropower projects installed which run at 46,209 MW. More than 9,000 MW of large hydropower projects are under construction at present and 26 GW of hydro projects are expected to be added to the list by 2030. This will aid in reducing India’s reliance on coal for power generation. However, greater diversification is required to effectively strengthen India’s energy security.
What is the future of renewable energy in ensuring power security?
The risk of coal shortage can only be compensated by building reserves of renewable energy and the government has already started to push for that. The government has set a target to install 175 GW of renewable energy capacity by the end of 2022.
Since the Capacity Utilisation Factor of solar power projects is low as compared to thermal, hydro, and nuclear projects, the government is promoting the development of solar energy via fiscal and promotional incentives such as accelerated depreciation which helps corporations receive tax breaks, financing solar rooftop systems as part of home loan, and permitting Foreign Direct Investment up to 100 per cent under the automatic route which stimulates investment into the industry.
The Government had also rolled out a scheme in 2014 to Develop Solar Parks and Ultra Mega Solar Power Projects in collaboration with state governments, CPSUs, and private entrepreneurs.
Additionally, the government is promoting technological initiatives by funding projects related to the development of renewable energy. The Ministry of Human Resource Development finances up to 50% of the total cost of renewable projects.
The government must also start offering substantial financial incentives to corporations investing in green technology. The Federation of Indian Chambers of Commerce & Industry (FICCI) also requested that a concessional tax rate of 15 percent must be provided to companies investing in green technologies.
This is essential to compete with nations such as China which provide incentives such as land at zero cost and funding at low interest rates to researchers pursuing projects on solar energy.
While the current heatwave, high international prices for coal, and several other factors account for this crisis, major faults on the government’s end are also responsible for this crisis since our system is neither designed for efficiency nor risk allocation.
Regardless of the stockpiling norm of the Central Electricity Authority (CEA) requiring all power plants to maintain 15-30 days of coal stocks, depending on their distance from coal mines, multiple coal stations disregarded this norm, leaving them with only minimal coal supply.
Furthermore, the rift between the power, coal and railway ministry continues to aggravate the situation. India is heavily dependent on only one source of energy (coal); the government should diversify its energy sources and meet its renewable energy targets on time.
Yuvaraj Mandal and Anushka Chib are first-year students at Ashoka University.
Image credits – Scroll