Electricity shortages in India during summer
A shortage of domestic thermal coal, that used in electricity generation, is primarily blamed for the electricity shortage.
Consider August, the month with the greatest electricity shortage in 2023, though the story is similar even in summer months.
Electricity shortage in August was about 840 million units due to a poor monsoon.
In turn leading to increased demand and reduced supply from some sources.
It is pertinent that this shortage was just 0.55% of demand that month.
Moreover, 0.6 million tonnes of domestic coal would have addressed this shortage even as over 30 million tonnes of coal were available in coal mines in August and September.
This illustrates that the challenge is not really about the availability of domestic thermal coal per se.
But of insufficient logistics to move the coal to power plants.
A recent Ministry of Power advisory corroborates this, saying “supplies of domestic coal will remain constrained due to various logistical issues associated with railway network”.
Addressing the logistics challenge would take some time.
Since coal is currently India’s best bet to meet shortages, the obvious answer is alternative sources of coal.
This leads to the second conflation — that the only alternative source is imports. Coal India Ltd. sells about 10% of its production, or 70 million tonnes-80 million tonnes each year through spot auctions.
While the price of such coal is higher than the coal that many plants get, it is much lower than the price of imported coal.
Though some plants may not have logistics constraints to get coal from the auction sites, even such plants do not consider auctions as an alternative.
Cause of Shortages
Not all power plants are the same.
Typically, the plants that generate the most (the so-called pit-head plants) are situated close to mines, far away from ports and do not face coal shortage.
Shortages in periods of high demand are more likely in plants far away from mines which typically do not generate as much.
Thus, there is no justification to interpret the advisory as a mandate to import 6% coal by weight for all plants in the country.
Clearly, the discourse around coal shortages in the country needs course correction.
It cannot be assumed that coal imports are the default way to address shortages.
The fundamental challenge is to overcome the logistics bottlenecks that are preventing coal reaching the locations where required.
In the interim, regulatory commissions and distribution utilities must ensure that all coal-based plants are alert to the possibility of coal
shortages and identify the cheapest alternative sources which may not be imports to bridge the gap.
Otherwise, the hapless consumer would be left to pick up the tab for inefficient coal procurement.
Upper limit of coal import
Some thermal coal imports to blend with domestic coal may be required even if auctions are used.
The question then is about how much of imports for which coal plants.
The Ministry of Power issued a recent advisory to power generators to continue monitoring their coal stocks until June 2024 and import coal as required (up to 6% by weight).
This was widely reported as extending a “mandate” for importing 6% coal.
It is convenient, as some might say, for such advisories to be interpreted as mandates by many coal-based generators.
Since the increased costs arising out of coal imports can be ‘passed through’ to electricity consumers via distribution utilities.
Therefore, it is up to electricity regulators, responsible for ensuring prudence of electricity costs, to not interpret such advisories as mandates.
There is little justification to treat the MoP advisory as a mandate, given that the letter itself repeatedly uses the word “Advisory” and the operative sentence reads.
Moreover, preliminary analysis shows that a mere 0.3% additional blending in addition to the 3.4% imported coal that was blended between April to December 2023, would have eliminated all shortages in that period.
Thus, the third misleading narrative is that 6% coal imports are necessary when it is just an indicative upper limit of imports that may be required.
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