Return Of Coal Shortage: How Govt Policies Led To This Crisis

Ten years on, NTPC, still the largest thermal power producer with a capacity of 47,460 MW, is struggling to keep its plants. Coal supplies to its power plants are barely keeping up with consumption. The situation at non-NTPC plants is worse. Data released by the Central Electricity Authority (CEA) on October 4 shows that 16 thermal power plants have no coal stock, whereas 108 plants have less than seven days of coal stock left.

But according to Choudhury, the present situation is quite different from what it used to be 10 years ago. “In the last 10 years, coal-based energy became a bad word and even import of coal was discouraged. The power evacuation system, primarily planned to match the coal-based capacity addition, became congested, as the focus came on solar and other forms of energy being evacuated through the same transmission lines,” said Choudhury. “Coal-based power was no longer on the priority list, as the present thrust is to promote solar and other forms of energy produced from non-fossil fuel.”

In 2015-16, the Centre committed to aggressive targets of installing 175 GW of renewable energy (excluding large hydro) by 2022. Out of this, the target solar energy capacity was set at 100 GW by March 2023 -- 40 GW rooftop solar and 60 GW ground-mounted. Despite its best efforts, the country has managed to install around 43.94 GW till July 31.

Demand for power over the years was growing at a slow pace due to subdued economic activity. The peak power deficit that used to stay well above 9 per cent till 2012-13 (Choudhury’s tenure) came crashing down to just around 2.23 per cent in 2020-21.

But now with the easing of Covid-related lockdowns and rising vaccination among the adult population, economic activity has picked up suddenly, creating demand for power. Growth in power consumption is generally considered to be one of the crucial markers of GDP growth. But this time, the spike in demand has coincided with a longer than usual monsoon that flooded coal mines in the country. Even solar power production has suffered due to overcast weather conditions across the country, and lack of storage facilities, putting the onus back on thermal power plants to meet rising power demands in the power-deficit country.

Putting All Eggs In One Basket

Choudhury has been a votary of coal-based energy. According to him, India cannot compromise on its energy needs in the hope of having inexpensive solar power in the future. “We had offered to provide 25,000 Mw of renewable power by bundling it with coal-based power with conventional power from thermal power projects which have out-lived its design age (i.e. financial closure period),” said the former CMD of NTPC.

According to the bundling plan proposed by NTPC, the company had factored in the cost of solar power with ‘Made In India’ solar cells at Rs 5-6 per unit, while coal-based power from these plants would be dependent on the fuel cost which was factored in at Rs 1.5- Rs 2 per unit from these older plants. This would mean that NTPC would sell the bundled power at an average cost of Rs 3 per unit. The power purchase agreements would also accordingly be modified to incorporate “NTPC’s Power” in place of thermal power

However, in the rush to phase out coal power and aggressive biddings by foreign solar power players, the price of solar power fell to record lows of less than Rs 3 per unit over the years, affecting the government's outlook towards thermal power producers. Interestingly, debt financing for green energy projects has faced challenges with Indian banks refusing to fund projects with a commitment of supplying power at less than Rs 3 per unit.

Over the years, NTPC itself committed to not setting up coal-based greenfield power projects. The company in its quest to secure its future in the green economy has allocated capital expenditure of Rs1 trillion between 2019 and 2024 with an aim to become a 130 GW power producer by 2032. Currently, its renewable portfolio has around 4GW capacity and the company plans to add around 5GW solar capacity over the next two years. News reports suggest that the company plans to acquire 1GW of operational solar projects to have a 32GW green energy power generation capacity by 2032.

What Government?Should Do Now?

Choudhury believes that as far as NTPC is concerned, they will be able to manage the situation. “They would have a good stock of carpet coal and have started producing their own coal that should take them out in times of crisis. Moreover, NTPC could always expedite the coal mining from their own mines and supply to their plants to ease the critical situation.” Carpet coal is leftover chunks and powder coal in the area where coal is stored in the plants.

Choudhury feels that coastal power plants should be assisted by the government to import coal from wherever it’s possible even if it means some government arrangement for a few months. Imported coal, considering the overall calorific value and due to near-zero Railway transportation costs would be quite competitive in these plants. This will allow Coal India to supply more coal to power plants based in non-coastal areas, improving the coal situation across the country. But all this is a temporary solution, according to Choudhury as the government should relook at more utilisation of an energy source i.e. coal which is available in abundance and at many places it is burning below the soil. Compliance with Paris ( agreement) is important but it should not be at the cost of our energy needs and as a country in cleaning the coal and improving the efficiency of the thermal generators, says Choudhury.

“Coal-based plants cannot be switched on and off frequently and tend to deteriorate if not allowed to function at an optimum efficiency,” added Choudhury.

The last time India’s coal-based power plants operated at an average PLF of above 70 per cent was in 2011-12. In 2020-21, the average PLF for coal-based power plants had fallen to a historic low of 53 per cent (See Chart 2.1)

Vivek Jain, director at India Ratings Research points out that coal production in India has seen a constant growth of around 3 per cent over the last decade. But since the power demand in the country was not growing much due in the past few years, we did not feel the pinch. “Now due to the sudden rise in economic activity, we are again seeing a 5-6 per cent growth in power demand, hence there is a shortage of coal in the country. What is unique this time is the price of coal in the international market, which has gone up significantly, and power plants with the capacity to use imported coal in their plants will see their power cost going up. Their major concern would be whether they can pass on the cost of higher power to consumers or not,” said Jain.

According to Wall Street Journal, Australia’s Newcastle thermal coal, a global benchmark, is trading at $202 a metric ton. The price has risen by 3 times since the end of 2019. Global production of coal is still around 5% down from the pre-pandemic levels.

India’s electricity demand is likely to cross the pre-Covid levels in the coming days until the expected third wave of the pandemic forces another lockdown in the country. This would mean that India will have to be prepared to ensure sufficient power supplies for its industries to maintain the momentum in the economy. While green energy is the future of the world, the current crisis in the power sector is a lesson of why India can’t ignore its coal-based power plants when it comes to safeguarding the country’s current energy needs.