Making sense of the debate on electricity supply crisis

Dr. Subhash Chandra Pandey (1st May 2022)

A barrage of news about rising electricity consumption, rising international price of coal and shortage of coal with power plants have raised fears of an impending power crisis. Hundreds of regular passenger trains have been cancelled to fast track movement of coal. Post-pandemic surge in electricity demand, soaring temperature and import disruption all have contributed to a near panic situation.

The first thing to note that there is neither shortage of domestic coal production nor electricity generation. The scenario is result of temporary spike in electricity demand supply gap. Low coal stocks with thermal power plants does not mean shortage of coal in the country.

Here is the big picture; facts that speak for themselves. There is absolutely no shortage of power if people are willing to pay its price, both in terms of cash and health.

At end February 2022, India had 181 coal based power plants with total capacity of 204 GW. Coal & lignite based electricity generation capacity was 210 GW out of the total capacity of 395 GW ( about 53% ) at end March 2022. We plan to reduce the share of coal & lignite based thermal projects to 32% of total capacity by 2030 to reduce carbon emissions.

Energy demand has shot up worldwide as economic activity picks up post-pandemic. As vaccination gathers pace and pandemic restrictions are whittled down, people and nations are playing catch-up.

During April-September 2019, India’s electricity consumption was 68100 crore units (kwh). It fell down 62500 crore in April-Sept 2020, mainly during the lockdown months of April-May 2020.

However, electricity consumption during April-Sept 2021 jumped to 71500 crore units, more than the pre-covid level even though there was a distressing second wave in April-May 2021 and the tour/travel/hospitality industry is not yet back to pre-covid level. Air/rail travel was not by then fully restored. Since then, there has been steady revival and acceleration of travel and other economic activities leading to a surge in electricity demand.

Increase in electricity demand is a positive sign indicating economic recovery. Increased coverage of households with access to electricity connection have brought new electricity consumers in the market. Growing digital economy also contributes to rising demand.

A welcome surge in electricity demand has raised supply concerns especially as all indications are further increase in electricity demand in coming months.

Since 2013, total primary energy consumption in India has been the third highest in the world after China and the United States.

Total power generation installed capacity in India has increased from 243 GW in March 2014 to 320 GW in March 2017 to 395 GW by March 2022. Out of this, 210 GW is coal/lignite fired thermal power (52%), 25 MW Gas-based thermal, 46 GW is from large hydroelectric projects, 45 GW from Solar, 40 GW from Wind power and 6.8 GW Nuclear

Renewable energy capacity is about 37% of total and India will reach 40% renewable energy capacity well before 2030 as per target accepted under 2015 Paris Climate Change agreement.

Although coal-based power plants contribute only about 53% of installed electricity generation capacity, these plants meet almost 75 per cent of total electricity demand.

(Renewable energy generation cannot be sustained on 24×7 basis unless big investments are made in electricity storage technologies. It also has limitations on ability to supply steady-voltage continuous supply required by specialised manufacturing industries.)

So even though we have made impressing gains in expanding solar power, we are still largely dependent on coal for electricity.

Our domestic production of coal is about 730 MMT and we annually import over 300 MMT. Electricity sector accounts for about 2/3rd of total coal consumption. About 550 MMT domestic and 50 MMT imported coal is used by thermal power plants every year. In 2021-22, coal imports have drastically come down (about 23MMT during April 21-January 22).

India is the second largest coal consumer after China. International prices of coal have risen recently for two reasons. Sharper increase in gas prices mean that countries are increasing dependence on cheaper coal-based thermal plants.

China is facing increased electricity demand in post-pandemic economic recovery and in a trade war with Australia, China stopped coal imports from Australia, one of the major exporters of coal.

Coal makes up nearly 60% of China’s energy consumption. Increased coal/power demand from China has set coal prices soaring high and many coastal power plants depending on (previously cheaper) coal imports are now switching to domestic coal in India.

For import dependent Indian power producers, it is costlier to import longer haul Australian coal than shorter haul Indonesian coal that is increasingly getting diverted to China.

The net result of all this is higher demand for coal, higher price for coal and resultant financial stress on power generating companies.

There have been temporary supply disruptions (monsoon-related) in coal mining and transportation. The coal supply position is steadily improving but there are basic issues to be addressed to ensure long term health of the power sector which is victim to populism. That basic issue is of financial distress on power generating companies.

Coal supply is a temporary problem. There is enough coal and production/transport will increase once monsoon woes are over.

In October 2021, power generating companies owed about Rs.20,000 crore to Coal India Limited alone.

Thermal plants are expected to have stock of 20 days requirement but many power producers don’t have money to stock coal because they have themselves not been paid by discoms for power supplied. Discoms are cash starved because tariffs don’t cover all costs, many consumers don’t pay their bills or delay payment. Power theft and leakage through unmetered supply continues to be rather high.

This is all reflected in discoms inability to pay to power producers.

Power producers give 45 days’ credit to Electricity Distribution companies (discoms). If the dues are not cleared in 45 days, outstanding dues are called ‘overdues’ liable to charge of penal interest.

As per yesterday’s report by the Power Ministry, the power distribution companies owed as much as Rs.102,006 crore at the beginning of April 2022 which increased to Rs. 108,751 crore by yesterday. The outstanding was Rs. 95,717 crore at end December 2021.

So if coal companies have to recover an amount in the range of Rs.20,000 crore from power generating companies, will it make sense for it to produce more coal and supply on credit? If power generating companies have to recover 5 times more amount from power distribution companies, can they continue production? Does it make sense for them to improve plant load factor and produce more electricity to supply on credit?

That is THE REAL problem.

The discom reform scheme UDAY ended in 2019-20 with most of the states failing to meet their stipulated targets.

On 1st July, 2021 Centre has launched a new scheme of ‘Reforms-based and Results-linked, Revamped Distribution Sector Scheme’ to provide conditional financial assistance to discoms for strengthening of supply infrastructure. The scheme with total outlay of Rs.3,03,758 crore will involve Central government budget support of Rs.97,631 crore by 2024-25.

All existing power sector reform schemes namely DDUGJY, IPDS, PM-KUSUM scheme would be subsumed into this new umbrella program.

Among the many contemplated reforms is a measure to create separate feeder for agricultural electricity supply, expansion of network of solar run irrigation systems. Other pending electricity reforms are removal of cross subsidies and open access, introducing competition by allowing consumers choice of electricity supplier.

States are presently administering two types of cross subsidy arrangements. One is between high-end and low-end household consumers and the other is between household consumers on one hand and industrial/commercial consumers on the other.

There are just too many consumer categories and tariff lines – slabs and fixed charges, making electricity pricing quite complex and non-transparent. On top of tariffs fixed by ‘independent regulators’, States levy Electricity Duty (as it is not subsumed in GST) which ranges from 0% to 70% for certain categories of consumers.

Cross-subsidy burden on industry is particularly problematic because it adversely affects cost competitiveness – manufacturing and exports and resultant job creation.

The installed power generation capacity in the country is more than the total demand but power producers are forced to cut production because they are not getting paid in time for power supplied. The action for clearing the consumer dues for electricity supply rests with the State governments.

It is frustrating that these reforms are getting delayed and deferred. Any myopic politics will sap the nation of energy in the long run.