By DM Deshpande
The month of October saw an unprecedented shortage of coal supplies in India. The situation might have eased towards the month end but the nation is still not out of woods and faces possible black out at least in some parts of India.
Though the media has highlighted the critical supply position of coal now, actually the situation was building up for months now. There are 135 coal fired plants in India; 16 of them had nil stock on September 29 as per data given out by Central Electricity Authority.
There were reports of 80 per cent of the plants running with less than a week’s requirements of coal in October that is, critical or supercritical state. The standard norm is to have stocks that last for three weeks. Normally, before the monsoon sets in, thermal plants increase their inventories.
After the second wave related pandemic curbs were withdrawn in most parts of India, economic activity has picked up significantly. While this is to be welcomed from the growth point of view, it has put tremendous pressure on power supply position especially for industrial users. In the last two months alone, demand for power has gone up by over 17 per cent.
While the demand for power has increased, supply of coal to thermal based electricity generation plants have not kept pace with requirements. The government maintains that there is no shortage of coal supply in the country; but the problem has been in transporting coal to electricity plants, logistic problems created by extended monsoon and heavy rainfall especially in the east and central parts of India.
Coal India, the public sector behemoth, is the largest producer of fuel in the world. It caters to 80 per cent of the domestic demand in India. Yet, India’s growing energy needs means we are the second biggest importer of coal in the world. China is the world’s biggest consumer and importer of coal. China’s trade ties got affected after Australia questioned its role in the origin of COVID 19.
Europe is also affected by shortage of supplies of coal. UK’s truck drivers went on strike that disrupted the transport within and outside the country. Most of the world has opened up after the second wave of the pandemic. As a result, demand for energy has shot up rather suddenly. Oil, gas and coal-all global prices have registered unprecedented rises in recent times. Coal and freight costs have risen by over 100 per cent in just one year.
As a direct consequence of the huge increase in international coal prices, Indian imports have been hit. It has also meant greater reliance on Indonesia for our imports. There are some reports of resumption of Australian imports to China as the country has already curbed consumption of fuel by users in homes and shops.
In India too there has been some sort of ‘prioritization’ of coal supplies; aluminium producers for example have been asked to hold back. Energy scenario is certain to ease in China with bulk imports. This will have a saviour effect on the global situation, too.
After an unprecedented contraction of the Indian economy by over seven per cent in 2021-22, it is expected to grow by 9.4 per cent. That would make it the fastest growing large economies in the world. Now that growth projection may get hit because of power shortages and increase in energy costs. India’s growth plans have another threat, that of inflation. With oil prices going over the roof, it has not helped the cause of curbing the rising prices trend. It is another matter that the RBI too has boldly taken a pro-growth liberal stance in its monetary policy pronouncements so far.
Natural gas prices too have risen sharply in world markets reflecting the general trend of rising energy prices. In tandem, prices of several goods and services have gone up rather quickly in an Indian economy that is still not completely out of pandemic restrictions.
Inflationary expectations too have got a boost, what with the central government releasing instalments of dearness allowances to its large army of employees and pensioners. Soon state governments will have to follow suit; a lot of liquidity and, that too, during the long festive season chasing goods and services in a Pandemic hit economy is a sure recipe for all round inflationary pressure.
Presently, India is excessively dependent on thermal electricity; 70 per cent of the energy produced is powered by coal. It is mostly on target to achieve the goal set for production of renewable energy. Yet, managing the transition is full of challenges for the government.
The government is embarking on a plan to increase coal output in order to tide over the current crisis. But it will have difficulty to explain its position in climate talks when it has to present its emission levels for 2030.
At the root of the problem is the pricing of electricity. Even with all reforms, electricity is still not priced considering its production cost. Petrol and diesel may have breached Rs100 a litre mark but that doesn’t prevent governments from holding back retail prices of electricity. As a result, distribution companies incur huge losses. In turn they can not pay the producing companies.
All states are not exactly in their fine financial health; even relatively better off states run up huge deficits that distort the power market. This cannot continue as it affects returns and investments in this vital sector. At a time when we, along with the world, are planning to switch big time to electrical vehicles, we can no longer ignore the need to set our house in order.
Long term energy security too hinges on concerted and coordinated actions on multiple energy resource fronts. After all, when energy prices are rising, no resource can remain immune to the general trend. One can bet on a large number of Indians to switch to a cheaper energy resource.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh.
