Reforms needed to tackle power crisis

Aayush Anand/Amarendu Nandy | Updated on October 25, 2021

Improving efficiency of thermal plants, developing a regional market, and greater thrust on renewables are vital

India is currently reeling under an unprecedented power crisis triggered by massive disruptions in coal supplies to power plants, especially in the northern and eastern parts of the country. The situation threatens to offset the green shoots of economic recovery exhibited in recent times.

Both supply and demand-side factors have contributed to the current crisis. First, the coal-fired power plants failed to maintain minimum coal reserves equivalent to 15-30 days of consumable coal. They continued drawing upon existing coal reserves until recently without replenishing, partly because of curtailment of supply (due to non-payment of past dues by some States), and partly due to lower imports (owing to high international coal prices).

Second, what appears to be a consequence of global climate change, erratic rainfall patterns in India have led to the flooding of coal pits in the dry season this year, significantly disrupting coal supplies.

Third, India’s post-pandemic economic recovery has placed heightened demand for resources, including power. During August-September 2021, power consumption jumped by more than 10 per cent compared to the same period in 2019 (the previous ‘normal’ year).

Fourth, at a more fundamental level, the poor efficiency of coal-fired power plants has precipitated the current crisis. A recent study by Council on Energy, Environment and Water (CEEW) has found that the net thermal efficiency of coal-fired power plants in India is 29.7 per cent only, substantially lower than the weighted world average of 37 per cent.

The current crisis underscores the need to assess the acute and chronic challenges plaguing the power sector, and presents an opportunity to enact critical and forward-looking reforms. In this regard, the following points merit attention.

First, urgent attention is required to bridge the massive deficit in energy generation from non-renewable sources. As a signatory of the UNFCCC Paris Agreement and as per Nationally Determined Contribution (NDC), India intends to increase its total cumulative electric power installed capacity from fossil-free energy sources to 40 per cent by 2030.

The timeline-based target across various renewable sources suggests that the deficit is particularly wide for solar-powered plants.

Solar energy

The latest data from the Ministry of New and Renewable Energy reveals that as against the target of 60GW of ground-mounted solar plants and 40GW of roof-top solar plant by 2022, only about 38.81 GW ( around 65 per cent of target) and 5.5 GW ( around 14 per cent of target) has been installed respectively so far.

The latest report of the International Renewable Energy Agency suggests that the decadal drop in the weighted average price of installation of solar technology in India is among the highest in the world (88 per cent). Yet, there is a significant gap in the target and actual installation of solar-powered plants, particularly solar roof-tops.

This calls for more concerted efforts by the government to scale-up financing options; facilitate single-window clearance process; and create awareness about solar benefits among consumers, mainly rural households, for augmenting capacity through more extensive roof-top solar installations.

Second, based on the cheapest-first principle (merit order dispatch), the extant power procurement policy is favourable for older inefficient power plants as they get coals at cheaper rates due to old price contracts.

As the CEEW study finds, adopting an efficiency-based dispatch policy instead of the prevailing merit order-based dispatch policy alone can improve the thermal efficiency by 6 per cent over the baseline, implying an overall annual reduction in coal consumption of 42 MT for the same quantum of electricity produced. Policymakers should seriously consider the suggestion, as such a shift will align our policies with global best practices.

Third, as a recent study by the International Energy Agency shows, with a slow but gradual increase in the share of renewables in the power supply portfolio, time lag in supply and demand peak of electricity has become more common.

In this context, there is an urgent need to devise policies related to demand-side management by introducing time of day tariffs for all sectors so that the timing of demand could be dynamically realigned to peak supply.

Supply management can be done by introducing storage systems to store excess electricity supply for later usage as and when there is a surge in demand. The storage system can be battery-based for behind-the-meter storage at the consumer level; and a combination of storage (including battery, pumped storage etc.) at the grid level, leading to increased system flexibility.

Fourth, India should take the lead in developing a regional power market — a position also consistently advanced by the Central Electricity Regulatory Commission (CERC).

Cross-border trade

Studies by UNESCAP have shown that cross-border electricity trade in South Asia shall lead to lower costs of electricity through more efficient utilisation of sub-regional energy endowments and price arbitrage between countries; lower operating costs of cross-border integrated systems; lead to input efficiency gains from a greater scale of production; lower levels of required generating capacity due to centralised management of reserves; and smoothen variations, both in generation and in load profiles.

Integration of the power market shall ensure the twin benefits of decreasing the share of coal-based power requirement, and meeting supply and demand variations on a regional scale, leveraging the temporal and spatial differences.

Being a developing country, India shall continue to rely on fossil-based power to meet the growing demands of the economy.

However, policy focus on a greater shift towards renewables, steps in improving efficiency, and fostering regional cooperation can go a long way in reducing dependence on non-renewable conventional resources, without affecting the country’s power needs and consumer welfare.

Anand is Executive MBA Student, and Nandy is Assistant Professor, IIM Ranchi. Views are personal

Published on October 25, 2021

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