GS Paper: GS3-13.Infrastructure: Energy, Ports, Roads, Airports, Railways etc:

Context

The recent power crisis due to the coal shortage in India underscores the need for measures to avoid a repeat of episodes in the future.

Factors contributing to power crisis

• Spike in power demand: With the sudden early onset of summer in 2022, power demand spiked, riding on the back of the post-Covid economic recovery.
• Increase in price due to Ukraine crisis: The matter was further exacerbated by the Ukraine conflict, which led to a sharp increase in the price of imported coal.
• Consequently, power stations designed on imported coal stopped importing because it was no longer economical for them to generate, given their contract price with the distribution companies.
• Availability of railway rakes: It’s not that domestic coal was not available since enough stock had been built in the mines.
• The issue was of availability of railway rakes for transportation.

What were the measures taken by the government ?

• 1] Import of coal to 10 per cent: First, all generators have been asked to import coal to the extent of 10 per cent (as against 4 per cent earlier) and that half of this should be physically available by the end of June.
• CIL as aggregator: Coal India will function as the aggregator on behalf of the generators.
• CIL functioning as the aggregator is a better idea and it may be able to import at a cheaper cost by accumulating demand as well as standardising the coal grade to be procured.
• Moreover, it would be easier for regulators to calculate the revised energy charge since the price at which coal was imported would be well-documented.
• 2] Section 11 of the Electricity Act 2003 (Act) invoked: Under this section, the government directed imported coal-based plants to run at full capacity with the assurance that their enhanced cost of operation would be compensated.
• 3] Tolling: The government invoked the concept of tolling, which allowed states to transfer their allotted coal to private generators located near the mines instead of transporting it to far away state generators.
• This move would ease the burden on the availability of railway rakes.
• 4] Seeking the consent of beneficiaries for hike: the government issued policy directions to the Central Electricity Regulatory Commission (CERC) overriding CERC’s regulations that made it mandatory to seek the consent of beneficiaries if the tariff went up by more than 30 per cent, if some alternate fuel is used.
• 5]  Committee to rework the energy charge: A committee of officials was set up to rework the energy charge for imported coal-based generators.
• 6] Additional working capital: The government is cognisant of the fact that there is a need for additional working capital and has advised REC/PFC as well as commercial banks to arrange for this.

Issues with the measures

• Use of Section 11: The government invoked Section 11 to give  direction to private generators to import coal at a higher cost.
• Section 11(1) allows the government to give direction to a generation company to operate and maintain a generating station in extraordinary circumstances.
• Section 11(2) of the Act mentions that the adverse financial impact on generating compacy due to directions referred to in sub-section (1) would be offset by the regulator.
• Going by Section 11(2), the government should have left the job of working out the energy charge to the regulator instead of setting up a committee of officials to do so though, of course, the CERC was represented in the committee.
• 2] No transparency: The committee has already worked out the revised energy costs for six of the plants but there is no transparency regarding the coal cost assumed, its calorific value, transportation cost, etc.
• 3] Additional rakes: We have to bear in mind that the coal problem arose because of the non-availability of rakes.
• With 38 MT of coal to be imported by October this year, and half of that by end of June, the need for rakes will not only go up but would be front-loaded.
• We need the requisite number of rakes otherwise, we are back to where we began.

Conclusion

While the government is taking steps to increase coal imports and addressing the other issues, it must ensure that domestic production does not dip during monsoon season.

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Context

The power crisis has taken us by surprise. The question in everyone’s mind is: where did we go wrong? And who slipped up?

Responsibilities in supply chain

• Under the Electricity Act, it is the responsibility of the Distribution Licensee/Company (Discom) to provide reliable quality and round-the-clock electricity to all consumers to meet full demand.
• To do so, they enter into contracts with a number of generating companies in order to ensure adequate supply.
• These Discoms work under the oversight of the State Electricity Regulatory Commissions.

Suggestions

1] Dealing with the challenge of demand prediction

• Qualitative transformation in demand: With higher incomes and the consequent increase in the use of air-conditioners and other electrical appliances, the nature of electricity demand is undergoing a qualitative transformation with rising daily and seasonal peaks, and spikes on very hot or cold days.
• While demand prediction is inherently uncertain, the questions to ask are whether Discoms have been making and updating their demand growth projections and scenarios over the medium term with adequate supply arrangements in a robust manner.
• This needs to become central to the regulatory process.
• Ensuring reliable supply to meet unanticipated peaks, as have occurred now, requires making supply arrangements with reserve margins that are adequate.
• The Regulatory Commissions need to provide for such expensive peaking power arrangements in the tariffs they approve.
• It is also time to move towards separate peaking power procurement contracts in addition to the present system of long-term thermal power contracts.

2] Demand-based time of day rates of electricity

• A transition to demand-based time of day rates of electricity for generators as well as consumers would help.
• These should be brought in by the Regulatory Commissions.
• Flattening of demand curve: Peak demand moderation and flattening of the demand curve through a change in consumer behaviour is feasible with smart meters.
• But this would take place only with a strong price signal, a large differential in peak and off-peak rates.

3] Subsidies and politics

• Free supply of electricity to farmers and households up to a specified level is not a problem as long as State governments pay for it as provided in the Act, and the Regulatory Commissions do not at the same time act from a political point of view and shy away from determining cost-reflective tariffs.
• While the problem of delayed payments by Discoms is getting highlighted and needs to be resolved with a sense of urgency, the coal supply problem is not due to this.
• Coal India needs to create capacities to rapidly ramp up production; and the Railways need to carry larger quantities of coal when demand surges, as has happened now.
• Imported coal and gas generated electricity: There is idle but expensive generating capacity available — about 15-20 GW of gas-based power plants which can run on imported liquefied natural gas, and 6 GW-8 GW of thermal plants which can run on imported coal.
• Consumers who are willing to pay more could be kept free of power cuts with purchase and supply of more expensive electricity generated from imported coal and gas.
• To improve reliability, Discoms, with the approval of the Regulatory Commissions, need to go in for bids for storage.

Conclusion

A lesson is that demand growth projections and supply arrangements need to become central to the regulatory process.

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Context

The power sector in India is going through a crisis. Peak shortages in some states have reached double digits.

Chronology of the crisis

• First, with summer approaching before time, power demand has shot up to record levels.
• The second reason for the rise in power demand is that the economy is recovering, and demand from the industrial sector is going up.
• All things put together, power demand crossed 207 GW on April 29, which is about 14 per cent higher than what it was a year ago.
• Experts feel that the peak demand may even touch 215 GW in the coming months.

Coal shortage crisis

• On average, coal stocks available are only good enough for about eight days’ generation against a norm of 24 days.
• In some plants, the stocks available are just about enough to run the plant for a day or two more.
• Part of the problem of poor coal stock is also rumoured to be on account of the non-payment of dues of coal companies.
• But this is not the major cause of the shortage.

Reasons for coal shortage and fall in generation

• The fall in coal stock in power stations is because of two main reasons.
• 1] Rise in international price of coal: The first is that due to a rise in the international price of coal on account of the Ukraine crisis, all plants that were importing coal have either stopped generating completely or are generating at much lower levels.
• We have a sizeable generating capacity based on imported coal, estimated at about 16 GW to 17 GW.
• All these plants after stopping imports are now looking for domestic coal, creating pressure on domestic coal.
• 2] Non-availability of rakes with Indian railways for transporting coal: Though about 22 MT of coal may be available in power stations, if one includes the stocks available with mining companies, the figure is well over 70 MT.
• So, it is all a question of transporting the coal to the power stations.
• 3] Fall in generation from gas-based plants: To make matters worse, generation from gas-based plants has also fallen due to high gas prices in the world market.
• 4] Impact on hydro generation: Reservoirs, too, are drying up due to intense heat which will adversely affect hydro generation.

Transportation problem faced by Indian railways

• The railways have about 2,500 rakes which can be used for coal transportation.
• With a turn-around time of about four-and-a-half days which goes up to nine days for coastal regions, the railways can provide only about 525 rakes on any single day. 
• Of this, about 100 rakes are used for transporting imported coal and therefore, only about 425 rakes are available on a daily basis for transporting domestic coal.
• But only 380 rakes were being provided in the first half of April this year, though efforts are on to increase this to about 415 rakes.
• The railways prefer to transport coal over short distances in order to save on the turn-around time.
• There is also the issue of availability of tracks since they are being used on a back-to-back basis.
• Thus production has to be enhanced so that the replenishment rate is higher than consumption.
• Unless we do that, the total stock of coal in the country will deplete further and it will no longer be a mere transportation problem as it is now, but a general lack of supply of coal.

Conclusion

This is the right time to enhance coal production and build adequate stocks because once the monsoon sets in, production will fall.

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