India faces a challenge as its coal stocks run low and over half of the country’s 135 coal-fired power plants run on fumes.
India is a country majorly dependent upon coal for the generation of electricity. Around 70% of its power is generated through coal the shortage of which poses a threat to the country’s post-pandemic economic recovery.
What lead to the crisis?
The power crisis was long coming as the demand for power surged sharply after surviving the second wave of COVID-19.
The consumption of electricity increased by 17% within the last two months in comparison to the same months from the previous year. Making matters worse, coal prices shot up by a staggering 40% in the global markets leading to a drop in India’s imports.
While India has the fourth-largest coal reserves in the world, it is also the second-largest importer. Power plants that were mostly relying on imports are now adding pressure to the already scant supplies of Indian coal.
What impact will it have?
Experts are of the view that importing coal to meet the needs is not a viable option. Indian Economist and Vice President at Nomura Dr. Aurodeep Nandi said, “We have seen shortages in the past, but what’s unprecedented this time is coal is really expensive now. If I am [as a company] importing expensive coal, I will raise my prices, right? Businesses at the end of the day pass on these costs to consumers, so there is an inflationary impact – both direct and indirect that could potentially come from this.”
In case the crisis continues, consumers will have to bear the rising costs of electricity at a time when retail inflation is already high.
India’s power production had slowed down in the last few years as the country attempted to diminish its dependence on coal in order to achieve its climate goals.
India’s Power Minister RK Singh described the situation as “touch and go” and said the citizens should prepare themselves for the coming challenges in the next 6 months.
Former Chief of Coal India Limited – a state-run enterprise responsible for 80% of the country’s coal supply, Ms. Zohra Chatterji warns that if the situation remains the same, the third-largest economy in Asia will find it hard to recover to its pre-pandemic economic health.
She said, “Electricity powers everything, so the entire manufacturing sector- cement, steel, construction – everything gets impacted once there is a coal shortage.”
She referred to the situation at hand as a “wake-up call for India” and urged the country to pursue a renewable energy strategy.
What are the government’s options?
The government has struggled to find a balance between catering to electricity demand for its population of 1.4bn and the ambition to slash the country’s dependence on coal.
Dr. Nandi says the vast scale of the problem makes finding a short-term solution unlikely. He explained, “It’s just the sheer scale of things. A huge chunk of our energy comes from thermal [coal]. I don’t think we’ve reached that stage yet where we have an effective substitute for thermal. So yes, it’s a wake-up call, but I don’t think the centrality of coal in our energy needs is set to be replaced anytime soon,
Mr. Jain says, “It’s not completely possible to transition and it’s never a good strategy to transition 100% to renewables without a backup. You only transition if you have that backup available because then you’re exposing a lot of manufacturing to many risks associated with the environment”.
Former bureaucrats like Ms. Chatterji are of the opinion that a crisis like the current one can be prevented using better planning. She emphasized the need for cooperation with Coal India Limited – the largest supplier of coal in India.
Ms. Chatterji adds, “Power producers must stockpile coal reserves, they must have a certain quantity at all times. But in the past, we have seen that has not happened because maintaining such an inventory comes at a financial cost.”
What happens next?
Even though it is hard to determine how long will the crisis last, Dr. Nandi is cautiously optimistic.
He says, “with the monsoon on its way out and winter approaching, the demand for power usually falls. So, the mismatch between demand and supply may iron out to some extent”.
Vivek Jain adds, “This is a global phenomenon, one not specifically restricted to India. If gas prices dip today, there could be a switch back to gas. It’s a dynamic situation”.
At the moment, the Indian government has reported that it is working with state-run enterprises to boost production and mining to lessen the gap between supply and demand.
The government also intends to source coal from so-called “captive” mines. Captive mines are operations that produce coal or minerals solely for the company that owns them and are not permitted to sell their produced goods to other businesses.
Experts are of the opinion that short-term strategies might aid in getting through the energy crunch for the time being but India needs to work towards long-term alternatives to fulfil its increasing domestic power needs.