Editorial: Energy crisis looms large
The deepening energy crisis comes as a reminder of the vital role that coal continues to play in India’s economy and how ending dependence on fossil fuel is still a far cry. India is now in the middle of a touch-and-go situation as the coal-fired power plants are running dangerously low on coal. Several factors […]
The deepening energy crisis comes as a reminder of the vital role that coal continues to play in India’s economy and how ending dependence on fossil fuel is still a far cry. India is now in the middle of a touch-and-go situation as the coal-fired power plants are running dangerously low on coal. Several factors have resulted in an energy crunch similar to the one being faced by China. Key among them are the rising power demand due to full-fledged resumption of economic activity in a post-pandemic scenario and unusually heavy rains that have inundated coal pits, especially in Dhanbad, which has the country’s largest coal reserve. Another factor is the widening price gap between domestic prices and global coal prices. Unusually high global coal prices and freight costs have led to a curtailment in power production by plants using imported coal. This added to the pressure on utilities using domestically mined coal to ramp up output. Over 80% of the coal-fired power plants have less than a week’s stock left as the supplies to power plants are currently short by 60,000 to 80,000 tonnes a day. India has 135 coal-fired power plants, with 16 of them reporting zero stock as of last week. With demand ever-increasing and supply low on the domestic front, the Indian power sector is facing a perfect storm. Coal accounts for more than 70% of India’s electricity output and the consumption of the fuel is forecast to increase in future.
This is despite the push for renewable energy and green investments. The power crisis in China is the latest event driving global demand for fuel. The price of coal from Indonesia, one of the major suppliers to India, has increased over threefold, from $60 per tonne in March to $200 per tonne in September. That has led to a drop in weekly coal imports by over 30%. At over 329 billion tonnes, India has the fourth largest reserves of coal in the world but it is also the world’s second largest importer of coal. State-run Coal India, which produces over 80% of India’s coal, has kept prices steady over the past year, despite global prices skyrocketing. India’s power tariffs are among the lowest in the world as the state-run distribution companies have absorbed higher input costs to keep tariffs steady. This has pushed many of these companies into huge debts running into millions. The strained balance sheets have consistently triggered delayed payments to power producers, affecting cash flows and hampering further investments in the power generation sector. Typically, Indian power producers locked in long-term agreements with distribution utilities often cannot pass on higher input costs unless clauses are included in their contracts.
