Burning issue

| Updated on October 17, 2021

A severe shortage of coal supply has hit electricity generation in the country   -  REUTERS

The fracas over coal calls for focus on problems in power distribution and coal production

The ongoing coal crisis is a ‘perfect storm’ of factors — demand-supply irregularities caused by Covid; a late monsoon spurt that halted mining; a dry spell in July-August that spiked electricity demand; low stocks with power plants; and China-driven high import costs, impacting in particular Gencos which cannot sell at cost-plus to the Discoms. But the basic trigger comes from two endemic issues: the deep financial crisis in the distribution sector, and the below-par domestic production by Coal India Limited, which accounts for over 80 per cent of total coal output. To take the first, power output is down because CIL has not released coal to a number of Gencos (many State-government owned), due to non-payment of dues, which in turn is because the Discoms have not paid them. According to a NITI Aayog report on Discoms, a sum of nearly ₹68,000 crore was payable to Gencos as on March this year. Discoms, in turn, are hit by non-payment of dues by the States, free supply or irrational tariffs for political reasons, and legacy thermal power purchase contracts that are overpriced. As the report suggests, apart from not signing “new expensive thermal PPAs”, Discoms should also procure cheaper power from the exchanges where the price is lower than the variable cost of the PPA. The separation of feeders for agriculture and domestic consumption in rural areas and the use of solar pumps for agriculture can clear the agri-power tangle. The reduction in aggregate technical and commercial losses (at 22 per cent) can make a difference. The prevailing crisis should be seen as a warning to snap out of business as usual mode.

On the production side, CIL’s earlier target of hitting one billion tonnes by 2019-20 has been pushed back to 2024. Its current output, at about 600 million tonnes (total sector output is about 720 million tonnes), is barely growing, as a result of which imports exceed 200 million tonnes annually. India is the second largest buyer of coal globally, after China. To reduce this dependency, CIL must step up its output by plugging managerial inefficiencies. Summer production can be improved to prepare for the monsoon bottleneck, with optimal use of technology and know-how support from efficient producers such as Australia. While Discoms’ reforms should improve the cash flows of thermal plants, CIL should be prompt in supplies. The existing PLF of just over 50 per cent can then improve. Senior posts lie vacant at CIL, affecting supply management. Its employees appear to have been working for other government schemes.

While the rise of renewables is inevitable, given its green benefits and falling costs, there can be no getting away from the centrality of coal, which accounts for 75 per cent of the power generated in India even if it is about 60 per cent of installed capacity. Coal remains the energy of the present, since renewables at current technology levels simply cannot plug supply gaps in real time. The sector can be ignored only at the economy’s peril, as the latest crisis showed.

Published on October 17, 2021

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