Is India on the verge of a historic power crisis?

– Arunoday Mukherjee

There may be an unexpected power crisis in India in the coming times. India has 135 coal-fired power plants, of which more than half are facing coal shortages due to severe depletion of coal reserves. In India, more than 70 percent of electricity is produced from coal, so this is a matter of concern as it may derail the economy which is back on track after the pandemic.

Why is this happening?

This crisis has been brewing for several months. After the second wave of the Coronavirus Kovid-19 epidemic, India’s economy has boomed and the demand for electricity has also increased suddenly. In the last two months alone, electricity consumption has increased by 17 percent as compared to 2019. Meanwhile, worldwide coal prices have risen by 40 per cent while India’s coal imports are at their lowest level in two years.

Although India has the fourth largest coal reserves in the world, but due to consumption, India is second in the world in importing coal. Power plants which usually run on imported coal are now dependent on coal being produced in the country. This has put the already crippling coal supply under even more pressure.

What could be the effect of this?

Experts believe that meeting the requirements by importing more coal is not a good option for India at this time. Orodeep Nandi, Vice President of Nomura and Indian Economist, says, “We have seen shortage of coal in the past, but this time the unprecedented thing is that coal is much more expensive.

If I am a company and I am buying coal at an expensive price then I will increase my price, will this happen? Businesses eventually pass on the expense to the customer, so this can lead to inflation – both directly and indirectly.

If this crisis continues like this, then the consumers may be hit by the increase in electricity prices. At present, retail inflation is already high in India because everything from oil to essentials has become expensive. Vivek Jain, director, India Ratings Research, says the situation is very uncertain.

In recent years, India has tried to reduce its dependence on coal to meet its commitments to the environment, due to which coal production in India has also decreased. India’s Energy Minister RK Singh has said in an interview to the newspaper Indian Express that the current situation is risky and India should be prepared for the next five-six months.

A senior government official, who did not wish to be named, told the BBC that the situation was worrying. Zohra Chatterjee, former head of Coal India Limited, a state-owned enterprise that produces 80 percent of India’s coal, warns that if the situation continues, Asia’s third-largest economy will struggle to get back on track.

According to Zohra, everything runs on electricity, so the entire production sector – cement, steel, construction, all get affected by the shortage of coal. She describes the current situation as a warning to India and says that the time has come for India to reduce its dependence on coal and move aggressively on renewable energy strategy.

What can the government do?

In recent years, the question of how India can meet the needs of its population of around 140 million and how to reduce its dependence on heavily polluting coal has been a challenge for the governments of India. Dr Nandi says that this problem is so big that no short term solution can be found for it.

The most important thing is that its scope is huge, says Nandi. A large part of our electricity comes from thermal power (coal). I don’t think we are at a stage yet to find an effective alternative to thermal power. I believe that this is a warning for India and India should be careful. But I don’t think our reliance on coal for our energy needs will be eliminated any time soon.

Experts believe that India will have to follow a mixed policy of switching to coal and clean energy sources for a possible long-term solution. It is not possible to completely shift to renewable energy and relying on 100% renewable energy without any solid backup would not be the right strategy, says Jain.

You only make complete changes when you have a backup, says Jain, because by doing so you are linking large-scale production to environmental and weather-related hazards. On the other hand, former administrative officer Zohra Chatterjee believes that the current crisis-like situation can be avoided by making long-term investments in many energy sources and making the right planning.

She believes that there is a need for better coordination between the country’s largest coal supplier Coal India and other stakeholders. Smooth delivery to the last level and responsibility of power companies should be ensured.

Power producers should also keep coal reserves, says Chatterjee, with a certain limit of storage at all times. But we have seen that this has not happened because of the financial challenges involved in arranging such large quantities of coal.

What can happen next?

It is not clear how long the current situation will last but Nandi is hopeful that things will get better. With the monsoon coming to an end and winters approaching, he says, power consumption usually drops and the gap between power requirement and supply may narrow to some extent.

Vivek Jain says, such a situation is in the world, it is not limited to India only. If the price of gas falls today, people will start using more gas. This is a changing situation. At present, the Indian government has said that it is working with Coal India to increase production and do more mining, so as to bridge the gap between supply and consumption.

The government also hopes to get coal from the hostage mines. These are the mines which are under the control of companies and only those companies use the coal produced from them. These mines are not allowed to sell coal under the terms of the agreement with the government.

Experts agree that India can somehow come out of the current crisis with short-term measures, but to meet the country’s growing energy needs, India will have to work towards investing in long-term options. The economies of the world have suffered the biggest decline in recent decades and India is also trying to bring its economy back on track. In such a situation, India would not like to have obstacles in its way.