Decoding India’s Energy Crisis

From power blackouts in China, petrol shortages in UK, production slump in Japan to coal crisis in India, a global supply chain crisis is in play as economies around the world have been witnessing a sudden surge in consumer demand while entering into the post-pandemic recovery phase, when there is a lingering supply-side crunch due to the Covid restrictions in the production hubs.

Amidst all the disruption, the most significant is what is being currently felt in two of the world’s largest economies- India and China in the form of a perturbing energy crisis. In China, the crisis is already in play as 20 out of its 23 provinces are going through power cuts and load shedding, the big manufacturing units which serve global consumer demand are seeing a slump in production due to shortages of coal and a sudden surge in domestic and international demand of commodities in the post-pandemic world.

China’s energy crisis is largely attributed to the rising prices of coal around the world and restrictions in domestic mining due to its climate change commitments, its ongoing tensions with one of its major suppliers—Australia is also adding up to its woes.

How the global energy crisis is affecting India?

India is not immune to the global energy crisis in play. Recently India’s Power Minister RK Singh has said in an interview that: “it is a touch-and-go situation in India and the next 5-6 months are crucial for the country’s energy sector as there’s a serious shortage of coal around the country with only a few days of reserves remaining.”

Despite having the fourth largest coal reserves in the world, the country is the second-largest importer of coal (largely due to the non-availability of good quality coal found in its reserves) which is one of the reasons why it has been affected by the ongoing coal shortages around the world.

However, India’s renewable energy share has drastically improved in recent decades owing to its climate change commitments, but it still generates around 66-67% of its electricity from coal. Gas power plants in the country are lying idle as prices of natural gas have been going over roof globally and domestic consumer is not willing to pay that much for power. So, overall consumer demand is heavily dependent on thermal power production.

For a long time, it seemed to everyone that India had surplus power generation that could any day meet its domestic demand but then some of the major power plants were shut down especially the Tata and Adani thermal power plants on the Gujarat coast as their power purchase agreement were calculated based on the cost of coal imported at that point and as the imported coal prices skyrocketed, the power plants were forced to shut down.

In the international market, coal is categorised based on the country or place of its origin. The prices of major imported coal have increased of late—(i) Australian Newcastle coal has registered a surge of 250% between Sept 2020-Sept 2021 (ii) Prices of Indonesian coal have gone up from $60/tonne to $200/tonne in the same period. Since a lot of Indian thermal power plants are dependent on imports from these countries especially Indonesian coal, the soaring prices have led to import cuts and hence the coal shortage. Indian states are already nearing bankruptcy as far as the purchase of power and particularly coal is concerned and such higher prices of purchase will also lead to prices being passed on to the consumers too which for political reasons won’t be followed by any state. Another contributing factor to the rising prices of coal is that China nearly produces all of the world’s coal and when it is facing a shortage in supply, it is buying from everywhere around the world due to which the supply is being gone down and prices have been going up.

How bad is the current situation in India?

(i) As per the official data, thermal power plants of nearly 40-50 GW worth capacity have less than 3 days of coal.

(ii)Nearly 3 crore electricity consuming households have come up in the last 18 months in India which has raised the demand for power consumption.

(iii) In Aug-Sept this year the power requirement registered was 124 bn units/month whereas in the same period in 2019 it was 106 bn units/month.

(iv) As per PSU watch, the agency that monitors PSU operations in India, currently 135 thermal power plants in India have an average of 2-4 days of coal supply which in early August this year had an average of 13 days of coal supply.

Coal is something that can’t be produced on tap. The entire process is troublesome which involves pulling it out from mines, loading it and then transporting it to the destinations which is time and resource-consuming in nature. That’s why the current situation is alarming for India.

Why this situation looks a “perfect storm” for India?

—India currently has fewer imported stocks due to increasing prices

—The call for self-reliance in the energy sector has hurt India’s supply of late.

—The sudden rise in domestic demand and the simultaneous rise in the prices of gas is affecting the generation capacity of the country.

—The prices of Australian and Indonesian coal due to big buying from Europe and China have ratcheted up the already soaring prices which have even worsened the situation.

—In September entire India received heavy rains including the east-central coal mining regions of the country due to which a lot of coal mines got flooded and supplies slowed down subsequently.

As per the Coal Secretary of India, Indian thermal power plants have a shortage of coal supply to the tune of 60,000-70,000 tonnes per day. As per the meta-data available, power plants worth 165 GW capacity has 5 days of inventory,104 plants accounting for 127 GW of capacity have less than 7 days of inventory.

According to data of Central Electricity Authority, 108 thermal power plants accounting for 132.2 GW of capacity have less than 7 days of inventory which is at a dangerous level from an official viewpoint. This includes—(16 power plants having zero stocks and 72 power plants having less than 3 days of stock).

Also due to the global shipping shortage in supply chains, the imported alternative is not going to be a quick fix for the current crisis of India.

What are the options available for India to tackle this crisis?

Daily supply shortage over demand in India is currently around 4 GW which is huge per se. To avert a collapse from this situation, possible solutions are—(i) Power cuts (ii) Systematic load shedding in different parts of India to rationalise the demand by the supply (iii) Price incentives for power plants in coastal regions that have been shut down earlier to restart those plants and increase the power generation (iv) Price incentives for the price at which power is sold or buoyed by utilities, then Gas based power plants can start working again in no time as they need very less time to fire up (v) Government is also pushing the state run-enterprises to increase their mining and production to bridge the gap between supply and demand, the government is also in talks with Australia to fix the supply crunch in imports (vi) Sourcing coal from the “captive mines” is also an option with the government which can be utilised in crisis-like situations

With the upcoming festival season, there is certainly going to be a rise in the power demand, also as electricity forms the backbone of other manufacturing sectors like cement, steel and construction so they will also get affected by the looming coal shortage over the energy sector in the country. India can’t afford to have a further rise in the domestic electricity prices as inflation is already ringing alarm bells from oil to food and if it scales up from this level, there are going to be much bigger problems in the economy.

The energy crisis in India is not surprising in entirety as many structural problems in the power sector have contributed to the present situation- like long time monopoly in coal mining operations which sums up to an over-dependence on a single entity for domestic supply, failure to find long term alternatives for the rising energy demands the renewable energy scale-up is still far from achieving it’s desired ends.

A complete transition to renewable energy is no feasible solution to the future demand in India but finding a correct balance and strong backup in case primary structure crumbles in challenging situations is a nuanced way forward to avert such crisis in future.

As India prepares itself for the upcoming CoP-26 summit in finding a way to achieve Paris climate commitments and carbon neutrality goals of the world, it must also put forward its case of sustaining an economy alongside fulfilling the dreams and aspirations of billions.

Leave a Reply