On June 10, India’s power demand touched a record high of 211 MW even as the coal shortage continued with coal stocks available only for eight days.
Background of Power Crisis in India
- The power demand breached the 200 MW level on several occasions as in the last two months, temperatures soared and the economy recovered.
- To bridge the gap between shortage in domestic supply and increasing demand, power-generating companies or ‘gencos’ were directed to use imported coal for 10% of their requirement, failing which their domestic supplies would be cut.
Causes of Coal Supply Shortages
- Despite India being the second largest producer of coal, with reserves that could last up to 100 years, year after year, the shortage of coal supplies continues to be an issue.
- Stagnation in Domestic Coal Production: the domestic production of coal stagnated between FY18 and FY21, but revived in FY22. This resulted in poor availability of coal to thermal power plants.
- Rise in Demand: In the recent months, the power demand surged owing to economic recovery and hotter weather conditions, leading to need for more coal.
- Reduced Import: Until FY20, domestic sources contributed to about 90% of the power sector’s coal receipts; the remaining was filled by imports.
- But by FY22, the reliance on imports dwindled to 3.8% which built pressure on domestic supplies.
- Causes for Reduced Coal Imports: This dip in imports can be attributed to the skyrocketing prices of coal in the international markets. The price of imported coal is nearly 5-6 times higher than domestic supply.
Impact of Rise in Coal Import
- As union government directed DISCOMS to use imported coal for 10% of their requirement, States are wary of using imported coal as it would raise the cost of power substantially.
- Rise in Cost: The shortfall in domestic supplies and the rising cost of imports have put power plants in a precarious situation.
- The use of imported coal will also push up the price of power supply to the power distribution companies or ‘Discoms,’ often dubbed as the weakest link in the power sector chain.
- Discoms are bleeding because the revenue they generate is much lower than their costs.
- Financial Distress: Discoms owe long-standing dues to the tune of ₹16 lakh crore to the gencos. Delays in payments by discoms create a working capital crunch for generating companies which in turn inhibits them from procuring an adequate quantity of coal.
- India must enhance investments in the deployment of clean coal technologies throughout the coal value chain. Government power utilities must show the way by investing in the deployment of advanced clean coal technologies.
- India should also be very cautious of adding new coal capacity beyond 2030 as it risks locking in resources.
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