India remains heavily dependent on coal for power generation. Of India’s total installed capacity of 374 GW, 53 percent (200 GW) was fired by coal at the end of 2020. In terms of actual power generation, the figure is actually higher since renewables provide intermittent capacity over the course of the year. State-owned enterprise Coal India is the largest coal mining company in the world. Most power plants have only 3-4 days’ worth of coal on average. This is significantly less than the government’s recommendation of at least two weeks’ worth of supplies.
The coal scarcity is particularly severe in non-pithead plants, or plants that are located distance from coal mines. 98 of the 108 plants that have reached critical stock levels, or less than 8 days, are of this type.
- The current coal scarcity is due to an increase in power demand as the economy recovers from the Covid-19 outbreak, as well as supply concerns. India is seeing the effects of a fast increase in electricity demand, a reduction in local mining output, and rising seaborne coal costs.
- An increase of more than 40% in the price of imported coal: China, the world’s largest coal consumer and producer, is experiencing a serious shortage. As a result, it has essentially imposed export restrictions on coal and is competing in the worldwide market for imported coal. This has resulted in a 100 percent spike in thermal coal pricing and freight expenses on the international market this year. As a result, power facilities in India that formerly relied on imports are now primarily reliant on Indian coal, putting additional strain on already stressed domestic resources.
- Non-payment of coal dues: India’s power tariffs are among the lowest in the world, controlled by the individual states. To keep rates stable, state-run distribution corporations have absorbed rising input costs. As a result, many of these businesses are severely in debt, with liabilities totaling billions of dollars. The companies’ tight balance sheets have regularly resulted in delayed payments to power producers, impacting cash flows and discouraging further investment in the sector.
- The electrical usage also increased as part of the world’s largest household electrification effort, the Saubhagya scheme.
- Flooding and Rainfall: Decreased-than-average stock accumulation by thermal power plants in April-June, as well as continuous rainfall in coal-bearing areas in August and September, resulted in lower production and fewer coal mine despatches.
- Imports are being reduced as a result of a persistent effort to reduce imports, as well as high worldwide coal costs.
- Increased Share of Thermal Power Plants: Coal-fired thermal power plants have also supplied a greater proportion of the rise in demand, resulting in thermal power’s share of India’s power mix growing to 66.4 percent from 61.9 percent in 2019.
- Impact on inflation: If the coal scarcity persists and corporations begin importing expensive coal, the cost will be passed on to consumers. This would have an inflationary effect on top of the already high rate of retail inflation.
- Economic recovery may be delayed if industry encounter electrical shortages, as enterprises may be forced to downscale output.
- If industries encounter electrical shortages, India’s economic reopening may be delayed.
- Some businesses may decide to reduce production.
- Impact on steel: As coal prices rise, so will steel prices, which may also climb as a result of this extraordinary spike. Steel producers use coal as a source of energy to operate their operations and create steel using the direct reduced iron (DRI) process.
- The power crisis could last for a long time, given India’s population and poor energy infrastructure.
- Impact on the outcome of the COP26 meeting in Glasgow: The major hope was that the recent success of renewable energy would allow countries to accelerate their transition away from high-emission fossil fuels like coal. It’s difficult to see how news of an economic rebound impeded by a coal scarcity in the world’s two largest growth engines can aid in reaching a consensus in Glasgow.
- Increase Imports: Despite the financial costs, India will need to increase its imports. For example, the price in Indonesia increased from USD 60 per tonne in March to USD 200 per tonne in September.
- Hydro-Power Production: The same monsoon rains that swamped coal mines are expected to boost hydro-power production. After coal, large hydro-electric projects on dams are India’s main source of electricity, and the industry peaks around the rainy season, which lasts from June to October.
- Increase Mining: The government is closely monitoring stocks, and state-owned Coal India and NTPC are working to increase mine output to enhance supply.
- Regardless of the status of the NCLT proceedings, coal-fired power stations can be authorised to begin operations immediately under the corporate insolvency resolution process. This reduces the time and quantity constraints in coal transportation to non-pit head coal plants.
- Rationing residential electricity supplies, particularly in rural and semi-urban regions, may prove to be one of India’s most simple remedies. When generation falls short of demand in India, power distributors normally limit supplies to certain areas on a cyclical basis, and an extension of load-shedding would likely be considered if power plants take any more hits.
- To avert a situation where a state’s payment defaults result in a supply crisis, the power ministry is developing a penalty for electricity generation firms (gencos)/states that fail to pay Coal India Ltd on time.
- Long term- Turn to Natural Gas-Powered Generators: Despite current worldwide price spikes, natural gas may have a larger role to play. In a pinch, the gas-powered fleet may save the day by preventing widespread power disruptions. NTPC Ltd., for example, is a state-run generator with idle capacity that can be cranked up in roughly 30 minutes if needed and is connected to the gas grid.
The current coal crisis has served as a wake-up call for India, and it is now time to lessen its over-reliance on coal and adopt a more aggressive renewable energy plan and focus on wind, solar, ocean energy etc.
How to structure:
- Give a brief intro why the coal shortage has happened- due to covid, and on the importance of coal in power generation in India
- Now, give the precise reasons for shortage
- Propose solutions-supply & demand side, and easing the load by other means
- Mention any international examples if any and conclude