Power sector needs a complete overhaul

Richa Mishra | Updated on October 17, 2021

Short-supply of coal during monsoon is an annual feature. It’s time to stop the blame game and fix accountability

“Enough coal supply is available”, “Power plants are not holding sufficient coal stock” and “Railways not transporting enough coal”, among others, have been making news for the past few days. This led to not only the Home Minister, Amit Shah, but also the Prime Minister’s Office getting into action, even as fears of some parts of country plunging into darkness began spreading fast.

However, this is not the first time one hears such news during the monsoon season; it’s been happening annually. But the situation this time is more serious and if one goes by what industry has to say, if action is not taken, it could be worse next year.

So, what exactly went wrong? If one asks the Coal Ministry, fingers are pointed at the Power Ministry, and the two together point fingers at the railways, which has the task of transporting the feedstock to coal-based power plants. And, therefore, the question that emerges is: Is it not time to fix responsibility?

The key factors that have been identified for the present coal crisis are: imported coal based power plants defaulting in supply, which put pressure on domestic coal plants; unpaid dues of distribution utilities leading to domestic coal supplier, Coal India Ltd, curbing supply; and monsoon leading to restricted movement of locally produced coal.

Besides, there is a connected issue of lack of liquidity with distribution utilities resulting in payment crunch for generators, who have in turn been unable to pay and procure coal. This has pushed the reserve capacities down. This circle of liquidity crunch could have been avoided if the much-delayed reforms in the power sector — starting with the Electricity Act amendment, distribution utilities reforms and payment reforms — had been addressed.

Also not to forget is the over-optimism on renewables. The past couple of years, with the focus being squarely on renewables, thermal has remained largely neglected (especially the independent power plants). With no more offering of long-term thermal power purchase agreements (PPAs) from the distribution utilities, addition of new thermal capacities has come to halt and the country’s assumption that renewable energy capacities are indicators of actual generation has put the industry in a bind, according to those following the sector closely.

According to industry trackers, with poor wind seasons continuing, wind capacity generation has been low. Similarly, solar capacity additions have also been impacted due to Covid lockdown. This situation might worsen, with most of the solar capacities earlier projected for commissioning next year being delayed due to steep increase in import duties imposed on solar modules and cells.

Putting it in perspective, the Director-General of Association of Power Producers, Ashok Khurana, said: “We need to move from best effort basis to accountability of stakeholders — Coal India, the railways and generators.”

Elaborating, he said, for stocking of coal, generators need to be paid for ‘output sold’. Currently, receivables for power sold are ₹1,16,000 crore. “Where will they get liquidity to buy and stock coal? Coal India and railways take one month advance payment — then also, supply is on best-effort basis. It is a vicious circle — to solve you need to ensure payment from distribution utilities.”

APP has been raising the issue with the government. “One of the most critical issues pertain to the need for institutionalising a Tripartite Fuel Supply and Transport Agreement for coal supplies to the power sector to avoid the continual blame game over coal supply shortages.”

According to APP, though electricity demand has been steadily improving since the commencement of the ‘unlock’ phases, it is yet to reach its expected peak for this year. The fact that coal based power continues to contribute 75 per cent of the total electricity generation in the country, and that transportation of coal to the power sector contributes around 40 per cent of railways’ freight revenues, it indicates the urgent need for commercialisation of the relationships of the stakeholders (power plants, coal companies and railways) to ensure accountability. This would help stop the perennial blame games and ensure that the country’s electricity demand is met.

Coal stocking norms

To avoid such a crisis situation in future, the Ministry of Power has worked out a strategy. According to Secretary Power, Alok Kumar, “the way forward to avoid such situations includes tweaking the coal stocking norms. If the power plants do not follow them, then there will be a penal provision.”

“It has also been observed that some captive coal mines are not operating pending regulatory clearances like those from the Environment Ministry. And most of the approvals pending are at the State level. Since there is a conscious effort to increase more captive coal mining operations, we are trying to resolve such issues along with the Environment Ministry,” he said.

Clearly, the target is to promote more generation from renewable energy. But the challenge has been storing the energy produced from these resources. “To overcome this, the government is working on a provision for creating more storage facilities in the grid for power generating from renewable energy in future,” he added.

On penalising the defaulting import-based plants, which are mostly governed by power purchase agreements, he said, there is a thinking that the penalty from the current levels for non-supply must be increased.

Currently, the penalty for non-supply is only 20 per cent. Besides, many States have capped the price at which imports can be done, which is not justified and arbitrary. There is a move to correct this too.

India can learn a lesson from Europe’s power crisis. While Europe has gas power plants to stand in, India doesn’t have similar options. “As we move more towards greening of our power sources, we need to provision for paying for standby thermal generation to avoid a mega crisis. Adequate liquidity for back-up reserve capacity needs to be planned and provisioned for,” said an industry observer.

Probably, the present situation is a good opportunity to rethink and fine-tune the energy policy without further delay. Bits and pieces reforms will not work anymore, as the chain has to been broken and a complete overhaul is required.


Published on October 15, 2021

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