Making Sense Of The Power Crisis Debate

A barrage of news about rising electricity consumption, rising international price of coal and shortage of coal with power plants have raised fears of an impending power crisis.

There are 135 coal-fired power plants with total installed capacity of about 202 GW meeting about 70 per cent of electricity supply. On 7 October, more than half of these plants had coal stocks of less than three days. 16 small plants with total capacity of 17GW had no coal stock.

Low coal stocks with thermal power plants does not mean shortage of coal in the country.

Here is the big picture; facts that speak for themselves. There is absolutely no shortage of power if people are willing to pay its price, both in terms of cash and health.

International Energy Agency has highlighted (report, “World Energy Outlook 2021” on October 13) that energy demand has shot up worldwide as economic activity picks up post-pandemic. As vaccination gathers pace and pandemic restrictions are whittled down, people and nations are playing catch-up.

During April-September 2019, India's electricity consumption was 68,100 crore units (kwh). It fell down to 62,500 crore units in April-Sept 2020, mainly during the lockdown months of April-May 2020.

However, electricity consumption during April-Sept 2021 jumped to 71,500 crore units, more than the pre-Covid level even though there was a distressing second wave in April-May 2021 and the tour/travel/hospitality industry was not yet back to pre-Covid level. Even air/rail travel was not fully restored.

Increase in electricity demand is a positive sign indicating economic recovery. Increased coverage of households with access to electricity connection have brought new electricity consumers in the market. Growing digital economy also contributes to rising demand.

A welcome surge in electricity demand has raised supply concerns especially as all indications are that there will be a further increase in electricity demand in the coming months.

Since 2013, total primary energy consumption in India has been the third highest in the world after China and the United States.

Total power generation capacity in India has increased from 243 GW in March 2014 to 320 GW in March 2017 to 388 GW in August 2021.

Out of this, 202 GW is coal/lignite-fired thermal power (52 per cent), 46 GW is from large hydroelectric projects, 45 GW from Solar and 40 GW from Wind power.

Renewable energy capacity is about 37 per cent of total and India will reach 40 per cent renewable energy capacity well before 2030 as per target accepted under 2015 Paris Climate Change agreement.

Although coal-based power plants contribute only to 52 per cent of installed electricity generation capacity, these plants meet almost 75 per cent of total electricity demand.

(Renewable energy generation cannot be sustained on 24x7 basis unless big investments are made in electricity storage technologies. It also has limitations on ability to supply steady-voltage continuous supply required by specialised manufacturing industries.)

Production linked incentives for domestic manufacture of batteries have been announced. In a few years, that should give further boost to renewable energy.

So even though we have made impressing gains in expanding solar power, we are still largely dependent on coal for electricity.

Our domestic production of coal is about 730 MMT and we annually import over 300 MMT. We need coal import despite large coal reserves for two reasons. Firstly, we don't have adequate supply of coking coal required by steel industry etc. Secondly, due to transport cost, coal imports are often cheaper for some coastal power plants than domestic coal.

Electricity sector accounts for about 2/3rd of total coal consumption.

India is the second largest coal consumer after China. International prices of coal have risen recently for two reasons. Sharper increase in gas prices mean that countries are increasing dependence on cheaper coal-based thermal plants.

China is facing increased electricity demand in post-pandemic economic recovery and in a trade war with Australia, China stopped coal imports from Australia, one of the major exporters of coal.

Coal makes up nearly 60 per cent of China's energy consumption. Increased coal/power demand from China has sent coal prices soaring high and many coastal power plants depending on (previously cheaper) coal imports are now switching to domestic coal in India.

For import-dependent Indian power producers, it is costlier to import longer haul Australian coal than shorter haul Indonesian coal that is increasingly getting diverted to China.

The net result of all this is higher demand for coal, higher price for coal and resultant financial stress on power generating companies.

There have been temporary supply disruptions (monsoon-related) in coal mining and transportation. The coal supply position is steadily improving but there are basic issues to be addressed to ensure long term health of the power sector which is victim to populism.

Coal supply is a temporary problem. There is enough coal and production/transport will increase once monsoon woes are over. But the real issue of financial distress on power generating companies remains. Power generating companies owe about Rs.20,000 crore to Coal India Limited alone.

Thermal plants are expected to have stock of 20 days requirement but many power producers don’t have money to stock coal because they have themselves not been paid by discoms for power supplied. Discoms are cash starved because tariffs don’t cover all costs, many consumers don’t pay their bills or delay payment. Power theft and leakage through unmetered supply continues to be rather high.

This is all reflected in discoms inability to pay to power producers.

Power producers give 45 days’ credit to Electricity Distribution companies (discoms). If the dues are not cleared in 45 days, outstanding dues are called ‘overdues' liable to charge of penal interest.

On 17 October, 2021, discoms owed an overdue amount of Rs.98,067 crore to power generation/transmission companies.

Rs.23,310 crore is payable to public sector thermal power generating companies (NTPC etc)

Rs.51,899 crore is payable to public sector thermal power generating companies (Maximum amount payable to a single company is Rs.25,611 crore, payable to Adani Power)

Rs.17,980 crore is payable to Renewable power producers

Rs.4,877 crore is payable to PowerGrid.

If coal companies have to recover Rs.20,000 crore from power utilities, will it make sense for it to produce more coal and supply on credit? If power producers are not getting paid for power supplied will they not reduce production? Does it make sense for them to improve plant load factor and produce more electricity to supply on credit?

That is THE REAL problem.

The discom reform scheme UDAY ended in 2019-20 with most of the states failing to meet their stipulated targets.

On 1st July, Centre has launched a new scheme of 'Reforms-based and Results-linked, Revamped Distribution Sector Scheme' to provide conditional financial assistance to discoms for strengthening of supply infrastructure. The scheme with total outlay of Rs. 3,03,758 crore will involve Central government budget support of Rs. 97,631 crore by 2024-25.

All existing power sector reform schemes namely DDUGJY, IPDS, PM-KUSUM scheme would be subsumed into this new umbrella program.

Among the many contemplated reforms is a measure to create separate feeder for agricultural electricity supply, expansion of network of solar run irrigation systems. Other pending electricity reforms are removal of cross subsidies and open access -introducing competition by allowing consumers choice of electricity supplier. Smart meters and prepaid electricity supply are also on the anvil.

States are presently administering two types of cross subsidy arrangements. One is between high-end and low-end household consumers and the other is between household consumers on one hand and industrial/commercial consumers on the other.

There are just too many consumer categories and tariff lines - slabs and fixed charges, making electricity pricing quite complex and non-transparent. On top of tariffs fixed by ‘independent regulators’, States levy Electricity Duty (as it is not subsumed in GST) which ranges from 0 per cent to 70 per cent for certain categories of consumers.

Cross-subsidy burden on industry is particularly problematic because it adversely affects cost competitiveness - manufacturing and exports and resultant job creation.

It is frustrating that these reforms are getting delayed and deferred. Any myopic politics will sap the nation of energy in the long run.

This post was originally published on Dr Pandey's Facebook timeline and has been republished here with permission.