Coal Shortage and the looming Power Crisis

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A combination of higher demand for power and shortages of coal, as coal stocks at more than 100 thermal power plants in India have fallen below 25% of the required stock, is threatening the economy with a potential power crisis.

Why does India face a coal shortage?

• Seventy per cent of India’s power demand is met by thermal power plants, which are mostly powered by coal.
• The biggest reason for coal shortage is the increasing power demand.
  • In 2021, demand increased to 124.2 BU per month from 106.6 BU per month in 2019. In 2022, the demand has further increased to 132 BU.
• There was a 6% reduction in power generation from imported coal, which led to extra demand of 17.4 MT of domestic coal, depleting coal reserves.
  • Moreover, there is a reduction in coal production as was stated by the Centre’s core management team (CMT) analysis on the 2021 coal shortage.

How will coal shortage affect power supply and cost?

• The daily electricity deficit in India has increased from 0.3% to 1% in April 2022.
• This has led to an 85% increase in the price of electricity traded on Indian exchanges from an average of Rs 3/kWh to Rs 8.23/kWh in March.
  • To regulate prices, CEA has capped short-term power exchange rates to Rs 12/kWh.
• The peak in demand has been met with load shedding, planned outages by States like Andhra Pradesh, Gujarat, Maharashtra, Jharkhand, Bihar, Haryana and Uttarakhand.

The problem of Grid Collapse:

• The national grid operator Power System Operation Corp (Posoco), has warned several states against overdrawing power and risking a grid collapse.
  • Maharashtra, Chhattisgarh, Gujarat and Dadra & Nagar Haveli are resorting to overdrawing, putting the national grid in trouble.
• Sources in the Union power ministry said the power crisis in western states is not due to coal shortage but on account of lack of foresight as arrangements were not made even as power demand soared and imported coal plants stopped operations amid high fuel cost.
• To avert the collapse of grid, states have now turned to idle thermal plants in search of additional electricity even at a higher price for power generated from costlier gas and coal.

Steps being taken by the Centre:

• The Centre has allowed States to use its captive coal reserves up to 25% to meet growing domestic demand.
• It has also allowed generating companies to blend imported coal up to 10% to ease the burden on CIL. While the Centre is mulling shoring up imported coal stock, higher coal costs make it difficult.
• In 2020, Centre had passed mining reforms to end CIL’s monopoly on India’s coal manufacturing.
  • The law allowed commercial mining in coal sector with 50 blocks to be offered immediately.
  • But the reforms have run into trouble as coal rich states like Bihar and Jharkhand opposed it citing that this will have an adverse impact on a large tribal population and forests.
  • The case is pending in the Supreme Court.

Sources:

• Explained | India’s coal shortage and its effect on power supply
• Power crisis: States turn to idle plants to avoid a grid collapse
• India's coal shortage could become another stagflationary shock