May 2, 2022 - Even before we reached peak summer, power cuts have started in many states. With power demand reaching 201 GW on April 26, we had a shortfall of 8.2 GW or 4 percent. This shortfall is even before we have reached the peak of summer when the demand is expected to rise to about 220 GW. The current shortfall is not because we do not have enough generating capacity. We currently have an installed capacity of 400GW, against a peak demand of about half that. Even with this installed capacity, many states face severe power cuts ranging from 22.3 percent in Jharkhand, 19 percent in Rajasthan, and 16 percent in Jammu & Kashmir and Ladakh. These load shedding figures are based on what the states had computed as their demand and what they actually received and are a little higher than what Indian Express has carried in its article on April 28.
Most of our capacity that addresses peaking demand is met from coal, supported by hydro, nuclear, gas and renewables. The key reason for the current shortfall is coal shortage in the power plants. Consequently, as the power demand increases, more coal is burnt, leading to the stock of coal with the power plants dropping even below the 30 percent of the minimum required inventory. With the increase in demand before the rains come, the crisis in the electricity supply is only going to worsen unless we take urgent steps to supply the thermal plants with coal.
The looming power crisis that we face was foretold by a similar situation last September, or our festival season when the demand again peaks. Then, similar to what is happening now, the power plants had a low inventory of coal stocks leading to load shedding; or buying power from the electricity spot market at exorbitant prices.
The BJP government is in denial that there is any crisis in the coal supply and consequently in the power supply situation in the country. The ongoing shortages in coal supply and serious power cuts are being explained away, either as an outcome of the international situation or the Russia Ukraine war; or starting the now familiar blame game: it is the railways not giving rakes; states not paying for coal; Coal India not supplying coal, etc.
Why, when we know that summer peak is the most difficult season for the power sector, was there no prior coordination between the power ministry, railways, and the states? Why is the excuse of a shortage of rakes being trotted out today? Did not the railways and the power ministry compute the number of rakes they would require to supply coal to power plants? Inter-ministerial coordination, robust planning, and dialogue with states as to their power supply and demand situations in anticipation of a difficult summer could have averted what we see today.
A coal-based power supply is still the mainstay of India’s electricity sector, constituting over 50 percent of installed capacity and over 70 percent of the electricity generation currently. Between March 29 and April 24, on an average, 77 per cent of the peak power demand on a given day was met by coal, 2 percent by gas-based power plants, 9 percent by hydropower, and around 10 percent by other renewable energy sources, mainly wind and solar power plants. Therefore, a known requirement is ensuring that coal based power plants can run smoothly, without interruption, with a steady supply of coal, especially in summer.
Last summer, the total coal-stock (inventory) available with power plants was about 60-70 percent of the prescribed amount. This year, the stock has now dipped to 30-33 percent. Worse, of 173 coal-based plants, 105 have coal stock below the critical level of 25 percent of the prescribed inventory. So what explains this year’s drop? Except for lack of planning and coordination?
International coal prices have indeed increased sharply. Higher international coal prices impact the import of coal, leading to lower production of power from those plants that depend on imported coal. However, a majority of India’s thermal power plants use domestic coal. Only 8 per cent of the total coal-based power generation is dependent on imported coal. Therefore, while higher imported coal prices can explain some loss of power generation, this is not likely to cause severe power shortages across multiple states. Third, if there is a shortage of rakes to transport coal as claimed, it points to a severe lack of inter-ministerial coordination. Even this does not explain the low levels of coal stocks in pit head plants, i.e., in thermal power plants located at the site of coal mines.
Multiple reports suggest that the government has asked states to arrange for expensive imported coal for its plants and blend it with domestic coal up to 10 percent. In addition, it has indicated that domestic coal supplies to states may be diverted to private generators to increase power generation from plants that are currently idling due to the high cost of imported coal.
If private players had decided to set up imported coal-based plants in ports and closer to major demandcentres, they took the supply risk of imported coal and its price. Asking state utilities to buy imported coal in order to supply the port-based plants – Adani’s and Tata’s – is simply asking the states to subsidise private capital. Second, let us understand what the proposal means. It means i) importing coal, transporting it to power stations inland from ports using railways, and ii) diverting coal supplies from mines to port-based plants again using railways. How does this solve the problem of shortage of rakes and the inability of the railways to carry coal from mines to inland power stations?
What would be the extra burden if 10 percent of imported coal is used by state-owned plants? With the cost of international coal going up to about 3-4 times last year, this means a 10 percent use of imported coal will lead to a 30-40 percent increase in fuel costs for the state utilities. Finally, the states and their consumers would bear the burden of the skyrocketing cost of power production. If the full burden is not passed onto the consumer through higher electricity charges, the state governments would have to shell out a huge part of their revenue essentially to help the private sector’s decision to set up plants using imported coal.
Additionally, there are only a few international coal suppliers who have links to domestic thermal power plants and can step in to reduce the gap between the supply and demand of coal. These international private suppliers can then reap windfall profits from the directive of the central government for states importing up to 10 per cent of coal for their plants.
The lack of coal availability to thermal power plants in the last few months is a serious lapse, leading to load shedding. Load shedding will severely impact the incomes and livelihoods of the people, especially in the MSME sector, which is already reeling under the impact of the pandemic. On the other hand, the purchase of expensive power from the spot market or from existing coal plants whose cost of power production is likely to increase due to the use of imported coal to make up for the shortage of domestic coal is likely to increase electricity prices which will also hurt the domestic industry and private consumers.
The other problem of a lack of supply is the high spot market cost of electricity during the period of peak demand. Peak demand is usually during the evening and lasts for a few hours. The states face a Hobson’s choice: they either have to shed load or buy power at exorbitant costs. Currently, some of the state utilities are buying electricity from Rs 12-20 per unit and incurring huge losses, while a few electricity traders make windfall profits.
We need to understand that it is the basic ideology of power sector reforms that has led to a situation where even with an installed capacity of 400 GW, we are unable to meet a peak demand of only half of that. The so-called market reforms have all been at the expense of the people who consume electricity and the states who have the responsibility to supply electricity while generating very little. (IPA Service)