This, unfortunately, is not rare. It happens almost every summer and on other occasions when energy demand is high. There is no clear evidence that India’s electricity sector, which is dominated by coal-burning power plants and state-run utilities, is simply not up to the job. And the problem will only get worse: India has been rapidly electrifying in recent years, and peak energy demand has been growing at 8%-10% annually.
The causes of these successive crises of power are almost always the same. Thermal power plants produce three-quarters of India’s electricity. But it seems they can’t get enough coal.
Sometimes the generation companies could not pay for the coal shipments because they in turn were not paid for by the improvised electricity distribution companies in India. Sometimes Coal India Ltd, the state-run giant that produces 80% of India’s coal supply, doesn’t produce as much as it promised, whether because of a miners’ strike or other reasons. Sometimes coal is mined from the ground but is left where it is because Indian Railways cannot organize enough wagons or locomotives. Sometimes protesters disrupt the long national coal supply chain. Sometimes the imported charcoal preferred by some factories is not available or the shipment is delayed.
Whatever the reason, the upshot is that India, which is notorious for its dependence on coal, has coal-fired plants operating at 50%-70% capacity even during times of peak demand. Combined with lower tariffs set by long-term PPAs, as well as chronically late payments, this means the whole business is unrewarding. Unsurprisingly, no one wants to invest in this sector.
Ordinary Indians are paying the price. Last month, utilities in the industrial state of Gujarat had to buy electricity from the spot market at three or four times the usual price, even with thermal power plants operating locally at only 45% capacity.
Conventional wisdom in India has long held that the country should continue to rely on coal because – unlike, say, crude oil – we hold huge reserves. Understandably, we do not want to depend entirely on imported energy. Energy security means macroeconomic stability.
However, the fact is that India’s coal-fired fleet was not designed to take advantage of domestic coal. Back when many of these plants were planned a decade or more ago, they were expected to use Indonesian or even Australian coal because these supplies were quickly available, while coal resources in India were difficult to exploit.
Imported coal is now much more expensive and the supply is no longer reliable. But cheaper domestic coal is often not of the quality that many plants are designed to handle; In 2017, the responsible federal minister complained that a third of India’s coal-based capacity relied on imported coal. According to research by Stanford University economist, Girish Shrimali, in 2020, the cost of operating roughly the same percentage of these plants is more than the standard cost of solar energy in India.
As many analysts have since pointed out, the situation calls for more global investment in India to retire coal, buy existing contracts, offset affected communities and switch to renewables. After all, electricity crises hit India when temperatures are at their highest and the sun is shining. (It is recognized that current solar cells tend to operate less efficiently at higher temperatures.)
India cannot continue to depend on its hopelessly inefficient network of thermal power plants. Government energy maps show how unfit for purpose they are. While modern, efficient factories are located along coasts and near ports, local coal reserves lie far inland. Geography means that transporting local coal to new power plants will always be a problem.
Unlike China, India has significantly scaled back its plans to expand its coal fleet. There are fears that the current crisis will cause a slight reversal in these plans and lead to the operation of new plants. But it is clear that this will not solve a structural problem.
Indians need to look at our dependence on coal-fired electricity with an objective eye. Far from being cheap and reliable, it often ends up being more expensive than it should be and absent when we need it most. Whatever coal may provide to India, it is not an energy security.
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