Coal scarcity was a man-made crisis, India needs a planned transition to renewables

·5 min read

It is pointless to deny that India is facing a power shortage caused by the inadequacy of coal, both domestic as well as imported. The government data, released from time to time during the current month, leads to no other conclusion. It is not any surge in demand for electricity, whose mainstay in India is thermal coal, which has caused it. In fact, there was a reversal in demand in 2020-21 by 5.7 percent, with coal offtake growing by a meagre 0.1 percent year-on-year in the first half of the current fiscal till September. It is instead the lowest availability of coal in the last 5 years which has led to complete power outages at 12 power stations earlier this month, and reduced generation at many more. At the 135 coal-based generation facilities in the country, the average coal stocks in early October had depleted to a worrisome four days' requirement. This compared poorly with the regulator's mandated 14 days.

Concerted and coordinated firefighting action, already initiated by the relevant stakeholders and public authorities, should soon pull the Indian power industry out of its predicament. However, the concern remains: If we find ourselves in this situation at a time of virtually no growth in the demand for electricity, what will happen when we start seeing a real recovery in the economy? During 2004-14, the CAGR for coal consumption was 7.2 percent, while between 2014 and 2019, it was 2.8 percent. With the economy looking up, there is little reason to doubt that we will soon witness an uptick again. Renewables are expected to bear a significant burden of the additional demand, with coal growth likely to be closer to the 2014-19 rate than of the earlier decade. The question is whether we are ready for such growth.

With 80 percent of domestic coal production coming from Coal India Ltd (CIL), the availability of coal in India relies heavily on its performance. In the nine months since January 2021, CIL output has fallen from 463.5mt to 453.2mt when compared to the previous year's corresponding period production. In the last full calendar year too, production had declined to 596.2mt; to meet consumption demands, imports equivalent to 25 percent of CIL's production had to be resorted to. This, despite the top leadership pushing to lower the quantum of imports given the country's huge reserves of coal. With such restraint on imports, as well as its rapidly rising costs €" at 25 percent of CIL production level, the imports had come down from the 35 per cent level seen in 2016 €" CIL was expected to fill the gap. However, in reality, its own production has kept declining from peak production of 607mt in 2018-19.

With its large monolithic structure, and status as a government-controlled monopoly, the management of CIL has no doubt several operational constraints when it comes to ramping up production and improving other performance parameters. Yet, the continuing decline in its production in recent years must now be checked urgently. For at least the next 30 years, coal-fired stations will remain operational in the country. Most of the supply will necessarily have to come from CIL which has had a tight stranglehold on the domestic industry. The conditions have to be set right for ensuring this publicly listed company continues to grow, including opening new mines and fulfils the charter of responsibilities entrusted upon it in the Coal Nationalisation Act enacted around fifty years ago.

Alongside this, we also need to be more realistic in our stand on coal imports. While we may have large coal reserves, there is no getting around the need for sizeable imports. Over the years, the Centre and the states have consciously pushed for setting up large generating facilities using the better-quality imported coal (which has lower ash content and higher combustibility) over domestic coal. For logistical reasons, most of these are near ports along our long coastline where elaborate ecosystems to deal with coal handling, transportation to the power stations, electricity generation, and pollution and effluent disposal, have come up primarily with private initiatives and resources. It would be ethically and legally untenable to deprive them of this essential feedstock before their lives run out or adequate compensation is provided to them. As such, their promoters already face the sizeable risk of fluctuating and appreciably rising costs of imported coal, particularly when several of them are required to supply power under fixed-price power purchase agreements.

The various remedial steps being put into motion to tide over the current situation will also need to be continued on a near-permanent basis. Announced a few months ago, the move to allow commercial coal mining by private miners must not be reversed, even though there is likely to be a considerable gestation period for their production to commence. Asking the 40-odd captive coal miners to ramp up their production and permitting them to sell half of their output in the open market is also a worthwhile incentive. Power producers who are ready to blend their domestic and imported coal should be facilitated.

However, diverting CIL supplies meant for non-power producers such as metal-makers and cement manufacturers to power plants must not be continued for too long since such industrial users had been legally assured of coal being made available to them. The e-auctions of coal to them by CIL, which has also been stopped, needs to be restored at the earliest since this channel makes the fuel available to industrial users, and also gets CIL the highest realisation for its output. Thinking beyond the nose in commercial matters such as these is invariably best left to the coal producer, rather than the Union Ministry of Coal pushing it to take such calls.

The writer, a former Union secretary, has extensive experience in the electricity and coal industries. The views expressed are personal.

Also See: PMO reviews coal supply, power availability situation to defuse energy crisis faced by several states

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