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Due to a serious shortage of coal stocks, 135 coal-fired power plants across India are facing a power supply crisis.
Why is it said that India is on the verge of an unprecedented power supply crisis? How did the Indian government respond?
Due to a serious shortage of coal stocks, more than half of India’s 135 coal-fired power plants are struggling to operate and are exhausted.
In a country where 70% of the electricity supply comes from coal-burning, this is a major concern because it may undermine India’s economic recovery after the new crown epidemic.
What are the reasons for the crisis?
This crisis has been brewing for several months.
After experiencing the deadly second wave of the new crown epidemic, as the Indian economy recovers, the demand for electricity has risen sharply.
Compared with the same period in 2019, electricity consumption in the past two months alone has increased by nearly 17%. At the same time, global coal prices have risen by 40%, while India’s coal imports have fallen to their lowest point in two years.
India is the world’s second largest coal importer, although it is also the world’s fourth largest coal reserves.
Power plants that usually rely on imports are now heavily dependent on Indian coal, which puts even greater pressure on already stretched domestic supplies.
What is the possible impact?
Experts said that India’s import of more coal to make up for its domestic shortage is currently not an option to solve the problem.
Indian economist and vice president of Nomura Securities, Dr. Arodipu Nandi said that India has had coal shortages in the past, but the reason for this unprecedented shortage is that coal prices are now really expensive.
He added that if you import expensive coal as a company, you will raise the price. Companies will eventually pass these costs on to consumers, which may lead to inflation, either directly or indirectly.
If the crisis continues, consumers will feel the surge in electricity costs. Retail inflation is already high because everything from oil to food has become more expensive.
Vivik Jain, director of the Indian Institute of Economic Rating, described the situation as “precarious.”
In recent years, India has worked hard to reduce its dependence on coal in order to achieve its goal of combating climate change. India’s own coal production has been lagging behind economic needs.
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India is the world‘s second largest coal importer.
In an interview with India Express, Indian Electricity Minister Kumar Singh said that the current situation is very unclear and India should prepare for the next 5 to 6 months.
A senior Indian government official who asked not to be named confirmed to the BBC that the situation is worrying.
Zohra Chatterjee, the former president of Coal India Limited, a state-owned company responsible for 80% of India’s coal supply, warned that if this situation continues, it will be difficult for Asia’s third-largest economy to get back on track.
She said that electricity is the foundation of economic power, so if there is a shortage of coal in the entire manufacturing industry (cement, steel, construction), everything will be affected.
She called the current situation “a wake-up call for India” and said that it is time to reduce over-reliance on coal and more aggressively implement renewable energy strategies.
What can the government do?
In recent years, how to strike a balance between meeting the electricity needs of nearly 1.4 billion people and reducing dependence on polluting coal-fired power plants has been a major challenge for the Indian government.
Dr. Nandi said that the scale of the problem makes it unlikely that there will be a short-term solution.
He said that the sheer scale of this matter is itself a problem. A large part of India’s energy comes from coal thermal energy. He believes that India has not yet reached the stage of finding effective alternative energy sources. Therefore, the current situation is indeed a wake-up call, but he believes that the core position of coal in India’s energy demand will not be replaced soon.
Experts advocate mixing coal and clean energy as a possible long-term solution.
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Experts believe that coal reserves are needed to gradually realize the transition to clean energy.
Jain, director of the Economic Rating Institute of India, said that it would be impossible without a gradual transition to 100% renewable energy, and it has never been a good energy strategy. The transition will only be carried out if there is a backup to support energy, because in this way, many environmental-related risks faced by many manufacturing industries can be reduced.
Leaving aside long-term investments in multiple sources of electricity, former bureaucrats like Ms. Chatterjee said that with better planning, crises like the current one can be avoided.
She believes that India’s largest coal supplier, Coal of India Limited, needs closer coordination with other stakeholders.
Chatterjee added that Indian power producers must have coal reserves, and they must have a certain amount of coal at all times.
But in the past, people did not realize that this would happen, and maintaining inventory has a financial cost.
What will happen next?
It is not clear how long the current situation will last, but Dr. Nandi is cautiously optimistic. He believes that with the advent of the Indian monsoon and winter approaching, the demand for electricity usually declines.
Therefore, he believes that the mismatch between supply and demand may be eliminated to a certain extent.
Jain added that the current mismatch between supply and demand is a global phenomenon and is not particularly limited to India. If natural gas prices fall, there may be a switch to natural gas, “this is a dynamic situation.”
At present, the Indian government has stated that it is cooperating with state-owned enterprises to increase production and mining in order to narrow the gap between supply and demand.
In India, some coal or mining companies own coal or mine resources, but under normal circumstances they are not allowed to sell their products to other companies.
The Indian government hopes to obtain more coal from these mines. The Ministry of Coal of India has issued a statement to assure businesses and consumers that India has enough coal to supply power plants.
The Ministry of Coal of India also stated that India has sufficient coal to meet the needs of power plants. Any worries about power supply interruption are completely illusions.
The overwhelming conclusion reached by the experts is that short-term remedial measures may help India tide over the current energy crisis, but India needs to work hard to find long-term alternatives to ensure that it meets its growing domestic electricity demand.
As India strives to emerge from one of the worst recessions in the world’s major economies, it will strive to avoid any further obstacles to recovery.