The discourse around coal shortages in India needs course correction
The spectre of electricity shortages rises again as hot weather descends across the country. In recent years, increasingly unpredictable weather patterns and a fast-growing economy have led to big increases in electricity demand, the meeting of which in a reliable way becomes a challenge. But some of the discourse in this context deserves greater scrutiny.
First, a shortage of domestic thermal coal, the kind used in electricity generation, is primarily blamed for the electricity shortage. Consider August, the month with the greatest electricity shortage in 2023, though the story is similar even in summer months. Electricity shortage in August was about 840 million units due to a poor monsoon, in turn leading to increased demand and reduced supply from some sources. It is pertinent that this shortage was just 0.55% of demand that month. Moreover, 0.6 million tonnes of domestic coal would have addressed this shortage even as over 30 million tonnes of coal were available in coal mines in August and September. This illustrates that the challenge is not really about the availability of domestic thermal coal per se, but of insufficient logistics to move the coal to power plants. A recent Ministry of Power advisory corroborates this, saying “supplies of domestic coal will remain constrained due to various logistical issues associated with railway network”.
Context
- In recent years, the spectre of electricity shortages has loomed large over India as hot weather exacerbates the demand for power.
- While the discourse surrounding this issue often focuses on the shortage of domestic thermal coal and the necessity of imports, a closer examination reveals deeper challenges related to logistics and regulatory interpretation.
- So, it is important to analyse these aspects highlighting the complexities of the situation and explore solutions to address the underlying issues.
Major Reason Behind the Shortage of Domestic Thermal Coal: Logistical Challenges
- Inadequate Transportation Infrastructure
- One of the key issues is the inadequate transportation infrastructure, particularly the railway network, which is responsible for the bulk of coal transportation in India.
- While coal mines may produce significant quantities of coal, the capacity of the railway network to transport it to power plants in a timely manner is often constrained.
- This results in delays and inefficiencies in coal delivery, exacerbating shortages during periods of high demand.
- Geographical Distribution Challenges
- Moreover, the geographical distribution of coal mines and power plants adds another layer of complexity to the logistics challenge.
- Many power plants, especially those located in regions far from coal mines, face greater difficulties in securing a reliable supply of coal.
- The transportation distance increases the time and cost involved in coal delivery, making these plants more vulnerable to shortages, particularly during peak demand periods.
- Storage and Handling Infrastructure
- Furthermore, the storage and handling infrastructure at both coal mines and power plants are often insufficient to cope with fluctuations in demand and supply.
- Inadequate storage capacity can lead to stockpiling issues at mines or plants, further exacerbating delays in coal delivery.
Import and Export
As per the present Import policy, coal can be freely imported (under Open General Licence) by the consumers themselves considering their needs based on their commercial prudence.
Coking Coal is being imported by Steel Authority of India Limited (SAIL) and other Steel manufacturing units mainly to bridge the gap between the requirement and indigenous availability and to improve the quality. Coal based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders are importing non-coking coal. Coke is imported mainly by Pig-Iron manufacturers and Iron & Steel sector consumers using mini-blast furnace.
Import of Coal and Coke to India during last ten years:File Size: 147 KB
Conflict Between the Idea of Alternative Domestic Coal Sources,Necessity of Imports and Its Implications
- Alternative Domestic Sources and the Idea of Imports
- Alternative sources of coal, such as auctions conducted by Coal India Ltd., offer a domestic solution that is often overlooked in favour of imports.
- Coal auctions provide an opportunity for power plants to procure coal domestically, albeit at potentially higher prices compared to coal obtained through other channels.
- Despite this, auctions present a viable alternative to imports, especially for plants that do not face logistical constraints in accessing coal from auction sites.
- However, the discourse tends to focus solely on imports as the default solution to address coal shortages.
- This narrow perspective overlooks the potential of domestic alternatives and fails to consider the broader implications of relying heavily on imported coal.
- Cost Implications of Imports
- Importing coal incurs additional costs, including transportation, handling, and import duties, which ultimately increase the variable cost of coal-based electricity.
- These costs are often passed on to consumers through higher electricity tariffs, placing a burden on households and industries alike.
- Regulatory Misinterpretation and Mandates
- Moreover, interpreting Ministry of Power advisories recommending coal imports as mandates further exacerbates the conflation between alternative sources and imports.
- While the advisories may suggest importing up to a certain percentage of coal, they should not be misconstrued as mandatory requirements.
- Rather, they should be viewed as guidelines to be carefully considered in the context of each power plant’s specific circumstances.
- Less Focus on Domestic Procurement Improvement
- Furthermore, the emphasis on imports overlooks the potential for improving domestic coal procurement and distribution processes.
- By addressing logistical challenges and streamlining administrative procedures, India can enhance the efficiency and reliability of its domestic coal supply chain, reducing the need for costly imports.
Regulatory Consideration in Shaping the Response to Electricity Shortages and Coal Procurement Strategies
- Address Misinterpretation of Advisories
- One of the challenges in regulatory considerations is the potential misinterpretation of advisories issued by government agencies, such as the Ministry of Power.
- These advisories may provide recommendations or guidelines for addressing coal shortages, including suggestions for coal imports. However, they should not be automatically interpreted as mandates.
- Misinterpreting advisories as mandates can lead to unnecessary costs and burdens on consumers, as power plants may feel obligated to comply with import recommendations even if domestic alternatives are available.
- Far-sightedness in Regulatory Decision-Making
- Regulatory bodies responsible for overseeing electricity generation and distribution must exercise forward thinking in their decision-making processes.
- They should carefully assess the implications of regulatory measures on stakeholders, including consumers, power producers, and distribution utilities.
- This requires thorough analysis of the costs and benefits associated with different coal procurement strategies, considering factors such as transportation costs, import duties, and environmental considerations.
- Tailored Approaches for Different Plants
- Furthermore, regulatory bodies should recognise that not all power plants face the same challenges when it comes to coal shortages.
- Plants located closer to coal mines, known as pit-head plants, may have easier access to domestic coal and face fewer logistical constraints.
- In contrast, plants located farther away from mines may rely more heavily on imported coal and face greater challenges in securing a reliable supply.
- Regulatory measures should, therefore, be tailored to the specific circumstances of each plant, rather than applying a one-size-fits-all approach.
- Balancing Cost and Reliability
- A key consideration for regulators is striking the right balance between cost and reliability in electricity supply.
- While imports may offer a quick solution to coal shortages, they come with significant costs that ultimately impact consumers.
- Regulators must carefully weigh the potential cost savings of domestic procurement against the reliability and security of imported coal supply.
- This requires robust cost-benefit analysis and consultation with industry stakeholders to ensure that regulatory decisions are transparent and equitable.
- Long-Term Planning and Sustainability
- Finally, regulatory considerations should also take into account long-term planning and sustainability
- While addressing immediate coal shortages is important, regulators must also consider the broader implications of coal procurement strategies on energy security, environmental sustainability, and the transition to renewable energy sources.
- This requires a forward-looking approach that balances short-term needs with long-term sustainability goals, ensuring that regulatory decisions support India’s transition to a more resilient and sustainable energy system.
Conclusion
- The discourse surrounding electricity shortages in India requires a nuanced understanding of the logistical challenges and regulatory considerations at play.
- While coal imports may seem like a quick fix, they come with significant costs and do not address the underlying issues of logistics inefficiencies.
- By addressing the root causes of shortages and adopting targeted solutions, India can navigate the challenges of power generation more effectively in the face of changing weather patterns and growing demand.
India faces rising electricity shortages as hot weather exacerbates demand. While blamed on a lack of domestic thermal coal, analysis reveals logistical challenges as the primary issue.
Logistics Challenges: Shortages are not due to coal availability but logistical inefficiencies. Ministry of Power acknowledges these issues, emphasizing the need for better transportation networks.
Short-Term Solutions: While addressing logistics takes time, immediate actions are necessary. Alternative coal sources, including domestic auctions, are viable options.
Import Misconceptions
The Ministry of Power issued an advisory urging power generators to monitor coal stocks until June 2024 and import coal if needed, up to 6% by weight.
- However, this advisory shouldn’t be misconstrued as a mandate.
- It explicitly uses the term “Advisory” and states to “opt for blending as per the requirements.”
- Analysis suggests that a mere 0.3% additional blending could have mitigated previous shortages, indicating that 6% imports aren’t necessarily essential.
- Misinterpreting the advisory as a mandate could lead to significant cost impacts, given that coal still powers over 70% of India’s electricity.
- Mandating 6% imported coal blending for all coal-based generation could raise variable costs by 4.5%-7.5%.
- This could exacerbate the 15% increase in power purchase costs observed in FY23, attributed to rising demand, coal imports, and imported coal prices.
- It’s imperative for electricity regulators to discern advisories from mandates to uphold the prudence of electricity costs and ensure responsible decision-making in the energy sector.
Cost Implications: Mandating imports could significantly raise electricity costs, impacting consumers. Regulatory oversight is crucial to prevent unjustified cost hikes.
Plant Disparities: Coal shortages primarily affect distant plants, not those near mines. Blanket import mandates are unjustified given these differences.
Correcting misconceptions is vital. Addressing logistical challenges and considering cost-effective alternatives are key to mitigating coal shortages without burdening consumers.
Electricity
- Principal source of energy in the world.
ADVANTAGES
- Inexhaustibility: There are many sources of electricity generation and hence they will replace each other. Currently, for India Thermal> Hydro> Nuclear power generation. In Japan where hydroelectric power plants were the important.
- Cleanliness: Electricity is much cleaner compared to other sources like coal and oil. It is an invisible source of energy i.e.; usage of electricity leaves no mark. However, a lot of pollution is done while producing electricity.
- Easy to use: It is highly adaptable. Current flow and voltage can be monitored to suite the requirements. Ideal for use in highly complex industries: precision is very important.
- Convenient to Transport: Unlike coal or oil, it does not require physical transport, loading and unloading, electricity can be transferred efficiently over long distance grids. Thus, it has an advantage of reaching difficult and uneconomic areas over coal and oil.
- Industrial importance: Indispensable in Information communication, internet and electronic equipment. It has led to decentralisation of manufacturing sector. Earlier access to energy was one of the main considerations for industries to locate. However, since electricity can be easily transported and easy to use, manufacturing industries have decentralized. For ex. Electric arc technology-based steel mills located in NCR region, Automobile industry using manufacturing robots located near NCR, Chennai & Pune etc.
DISADVANTAGES
- Electricity can only be transported at relatively short distances as compared to coal and oil and only over the grids, if grid is not there it cannot be transported.
- Electricity cannot be stored: It has to be used instantaneously. This creates a lot of problems as there is no reserve to fall back to as in the case of coal and oil.
- In industrial areas demands are high when production is going on while in city demand peaks during the day. So, the production must be varied accordingly. This is achieved by running big power plants in full capacity and keeping others on partial capacity so that their production can be altered to meet the variation.
Fossil Fuel | |||
Coal | 2,04,435 | 49.7% | |
Lignite | 6,620 | 1.6% | |
Gas | 24,824 | 6.1% | |
Diesel | 589 | 0.1% | |
Total Fossil Fuel | 2,36,469 | 57.4% | |
Non-Fossil Fuel | |||
RES (Incl. Hydro) | 1,68,963 | 41.0% | |
Hydro | 46,850 | 11.4% | |
Wind, Solar & Other RE | 122,113 | 29.6% | |
Wind | 42,015 | 10.2 % | |
Solar | 64,381 | 15.6% | |
BM Power/Cogen | 10,218 | 2.5% | |
Waste to Energy | 523 | 0.1% | |
Small Hydro Power | 4,943 | 1.2% | |
Nuclear | 6,780 | 1.6% | |
Total Non-Fossil Fuel | 1,75,743 | 42.6% | |
Total Installed Capacity | 4,12,212 | 100% |