By Devi Prasad Dash
In the coming days, the world will be grappling with crises potentially bigger than the pandemic. These include climate change, infrequent weather variations, soaring energy prices and depleting energy stocks. The recent global energy crisis is showing such a trend, where economies right from Europe to Asia have faced a probability of power blackouts owing to the depleted stock of coal and not enough non-renewable energy sources to fuel the power sector.
Though we have much talked about sustainability and clean air mechanism at global platforms, the reliance on traditional energy sources has not declined. Rather, economies like India and China have increased coal utilisation across sectors right from industry to power. The power sector in these two large economies derives most of its inputs from coal.
With the rise in import prices of natural gas and coal, economies like Brazil, Qatar and Pakistan, many Middle Eastern and South Asian economies may experience power outages in the future. Further, acceleration of vaccine rollouts and declining Covid cases will likely see a global rebound in energy demand with a new high in carbon emission intensity. Depleted global coal resources and rising coal prices have pushed many economies to jostle to secure supplies for their indigenous usages.
The Indian economy is no exception. With a strong rebound of the economy from the second wave of Covid and spiralling electricity demand, many Indian States are staring at a power crisis. Coal shortages have impacted power generation in States like Punjab, Rajasthan, Delhi, Tamil Nadu, Andhra Pradesh, Jharkhand, Bihar, Odisha and Karnataka. Although hydropower is utilised for power generation, the share of coal in electricity production remains the highest across the States. Higher household demand for electricity, higher power requirement in agricultural and industrial sectors post the second wave have suddenly escalated the demand for power generation in the country. As per the latest statistics on coal production, India’s coal production has marginally dropped 2% to 716.084 million tonnes in FY21 from 730.874 million tonnes in the last fiscal. However, the import of clean coal has relatively increased to meet the domestic demand.
Four Main Reasons
The Power Ministry has listed four reasons behind the present depletion of coal stocks:
- Unprecedented increase in electricity demand post the second wave with the rebounding of economy that led to a demand-supply mismatch. As per the Central Electricity Authority, daily consumption of electricity has jumped over 4 billion units per day.
- Unprecedented heavy rain in September heavily impacted the domestic coal production, and its transportation and dispatch from the mining areas.
- External factors like a huge increase in imported coal price saw a substantial reduction in power generation in import coal-based power plants, especially in Maharashtra, Punjab, Andhra Pradesh and Delhi.
- Key domestic factors like lack of maintenance and non-building of sufficient coal stocks prior to the monsoon season led to the failure of meeting the escalating coal demand post-July 2021. Further, India’s industrial power demand has jumped to a record high post the second wave, with Indian utilities accounting for 75% of the total coal consumption.
Widening Domestic, Global Price
The surge in global coal price has a cascading effect on India’s power sector. Owing to the power crisis in China, failed coal trade agreement between China and Australia, Covid-19 in Mongolia, restrictions on indigenous coal production in China and opening up of major economies post the first wave, the global coal demand shot up nearly ten times, while supply remains lackadaisical.
The domestic coal price has remained constant despite the increase in miners’ price, as most of the coal supply is controlled by state-owned Coal India. With a rising freight cost, plants using imported coal tend to curtail domestic power generation, adding pressures on the domestic coal players for ramping up production.
Crisis and Economic Recovery
While on the path to economic recovery, the country would face large-scale power cuts, thus demeaning a strong industrial growth. Electricity demand escalated 17% this August compared with pre-covid August 2019. Electricity demand in the industrial sector post-July 2021 has gone up considerably. Any form of massive power cut would hamper the industrial sector’s rebound and potentially increase steel prices.
As most state-owned electricity distribution units are heavily indebted, this crisis may lead to the derailment of agricultural and small-scale industrial growth at the State levels. Too much dependence on coal may dwindle the development process, as the process, both in domestic and international spheres, highly relies upon availability, accessibility, cost of exploration and global freight cost aspects.
With the much-needed sustainability aspect in the picture, India should rapidly start investing more in the production of natural gas and nuclear energy sector to ramp up power generation in the near future. Being a highly coal-dependent economy, the government has to look for immediate alternatives in restoring the green energy supply to maintain sustainability.
Other concerns amidst recovery have also popped up in terms of inflation. It has been doubted that the energy crunch may stoke inflation in both the short and long run due to demand-supply mismatch. Fears arise; fuel shortage and rising fuel price may increase inflation up to 1% point soon. Further, escalating import bill from the fuel itself expects to widen the current account deficit by 1% of the GDP by 2022. Last but not the least, the manufacturing sector is bound to be impacted, which may harm the employment level and private final consumption in the long run.
Opportunity in Crisis
The coal crisis has opened up many options to relook into the ongoing issue and the government must potentially work forward to avert such a crisis in future.
First, the government must reinvigorate the process of reshaping and utilising hydropower plants to the fullest especially in the coastal States to generate more electricity instead of relying heavily on coal-powered plants.
Second, the central government must look for viable options of installing nuclear energy and solar power plants to generate electricity in northern India and other hinterland States away from the coast. Besides these, hydroelectric power generation must be given equal priority for these States too. Investment in solar energy could be a feasible option to produce electricity. As of now, India’s solar energy investment in the energy mix is hardly 4% of total energy consumption. Still, this opportunity to scale up investment in the solar sector, especially in hill regions, north-western India, northern States and dryland States, can be a blessing in disguise.
Recent initiatives by the Government of India ensure that the economy is set to achieve the target of 450 GW renewable energy installed, especially solar capacity, by 2030, thus fulfilling the Nationally Determined Contributions.
Third, State governments must simultaneously come up with special incentives to encourage citizens to switch to alternative modes like solar and wind energy sources. Special concessions must be provided by States for renewable energy products to offer their citizens a chance to improve electricity access.
Fourth, to ensure a smooth flow of renewable energy across the States, the government must come up with a uniform renewable energy grid to coordinate energy supply over the wide geography. As per the International Energy Report, 2021, it has been predicted that solar energy to a certain extent will outstrip coal in power generation by 2030 with the government’s target to reach 450 GW of renewable energy. However, risks persist in terms of land acquisition, contract uncertainty and delayed payment to power generators. An appellant environmental authority must be assigned in reforming these sector-specific issues pertaining to renewable energy investment instantly.
With a possible crisis looming large and depleted coal stocks, the government must swiftly adopt the strategy of aiming forward for the development of the green power sector to deal with the escalating power demand.
(The author is Assistant Professor of Economics, School of Management and Entrepreneurship, Indian Institute of Technology (IIT) Jodhpur, Rajasthan. Views are personal)
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