Policy Wise: India’s Power Sector

Lessons from the coal shortage

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Coal shortage issue

Context

Normally, the power-generating companies maintain around 30 days of inventory of coal, but, currently, this has come down to three days.

Factors responsible for the crisis

  • Supply side issue: On the supply side, because of low investment, coal cannot be mined more than the capacity which exists today. Hence, the increase in supplies will be gradual.
  • High global prices: The global coal crisis has led to higher prices.
  • Here, too, a sudden resurgence in demand after the pandemic has exposed the supply limitations.
  • The international price has gone up by almost 40 per cent in the last month.
  • China factor: China – a major producer and consumer – has also faced this problem as it has tried to save coal for the future and imposed restrictions on mining to go green.
  • Emphasis on lowering the dependence on import:  In India, coal imports have been traditionally high.
  • Under its atmanirbharta drive, the government has voiced concerns on this issue and asked generators to be more self-reliant.
  • Coal dependency came down over time, which also coincided with a lower phase of economic growth.
  • The same has happened in China where the government has taken the greening concept seriously and asked coal producers to control production and power generators and move over to other greener fuels.
  • This has made coal producers less willing to increase investment.

Why power companies are reluctant to import coal?

  • Ideally, power companies should import coal.
  • But that increases the cost of power production and power tariffs cannot be revised easily, like in the case of crops.
  • The power sector, however, already has its woes.
  • Distribution companies have been running losses due to their inability to cut down on transmission losses or increase tariffs.
  • As their losses mount, the amount overdue to the generators increases.
  • Therefore, the producers are not willing to increase their costs.

How it would impact the economy?

  • The economy has been showing signs of recovering and the October-December period is crucial because there are expectations of pent-up demand helping to accelerate growth.
  • Any disruption in the power supply can push back this process.
  • The challenge is that today all the three sectors, agriculture, industry and households, are equally important.
  • A lot of business is being conducted from home after the pandemic, and power disruptions will come in the way of work.
  • If power companies start revising their tariffs, inflation will shoot up.

Conclusion

The coal shortage problem is very serious as it affects power supply, which is the backbone of all economic activity. All stakeholders – the Centre, states, miners and power generators – must work together and plan the strategy going ahead.

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