India is seeing a surge in power demand, with industrial and economic activity picking up pace in the past few months. But thermal power plants are in a crisis as coal stocks are bottoming out. According to Central Electricity Authority (CEA) data, 77 coal-based thermal power plants (57% of total coal plants in India) with a total capacity of 98 GW had a ‘super critical’ coal-stock (stock for less than three days) on October 5, 2021.

There was no stock at 17 of these plants with a cumulative generation capacity of 19 GW. The standard stock requirement at the plants is 15-30 days.

Like in China, the coal shortage has been building up in India these past few weeks. The coal shortage has coincided with rising power demand since August this year. On October 4, power demand stood at 174,000 MW – 15,000 MW more than the same day last year.

Power industry insiders, and also Union Power Minister R K Singh, believe the coal shortage could last for several months. Vinay Pabba from Varp Power told Mercom that between September 2020 and September 2021, power demand went up 16.7%. “It is not just a supply problem; power demand has risen significantly, resulting in higher coal requirement. It is not easy to ramp up coal production, especially in the monsoon season. This issue will persist for a quarter at least.”

According to the coal statistics published by India Power Pulse for September 2021, coal production stood at 52 million tons (MT)– a 7% growth year-over-year (YoY). Higher coal generation aided by higher demand has led to sharp depletion in inventory by 10 MT.

Coal imports in the first half (1H) of FY 2021-2022 were estimated at 106 MT.  Thermal coal imports have slowed down to 9 MT against a 14 MT per month run rate. In FY 21, India’s coal import stood at 215 MT (against 247 MT in FY 20). The overall coal production went down 2% in FY 21.

According to India Ratings and Research, coal prices have seen a sharp rise and are likely to remain high in the short term.

The Ministry of Coal has taken a few crisis mitigation measures. It has amended the Mineral Concession Rules, 1960, to allow the sale of coal or lignite on payment of an additional amount by the lessee of a captive mine.  The amendment allows the sale of up to 50% of the total coal or lignite produced in a year after meeting the requirement of the end-use plant linked with the mine. This applies to both the private and public sector captive mines.

The availability of additional coal may ease pressure on power plants to some extent.

Can renewables offset the shortage?

The government has announced lofty targets of installing 175 GW of renewable energy by 2022 and 450 GW by 2030, but can it offset the likely slump in power production from coal-fired thermal plants?

Currently, coal accounts for 70% of India’s power generation. Solar energy could witness exponential growth and match coal’s share in the Indian power generation mix by 2040 or earlier. Still, Solar’s share in the overall power mix is less than 4%.

According to Vinay, the coal crisis will not impact the solar segment in the near term. “This development is relatively neutral for us. There is a process of floating tenders, winning bids, and then setting up the solar project, which will supply power to the DISCOMs for 25 years. Since there are no short-term power purchase agreements, a slowdown in coal supply will not raise demand for renewable energy in two quarters,” he said.

A senior executive at an independent power producer wondered why have DISCOMs not banked on their surplus power? “The coal shortage is going to be a serious issue in the weeks to come, with winter setting in. The CEA and DISCOMs need to be transparent about the power demand scenario. Several DISCOMs claimed to have surplus power – one of the reasons for them to turn down renewables. We need to find out if this surplus power is real now.”

“In the months ahead, DISCOMs will realize that renewable tariffs are far less compared to the exchange trade prices and conventional energy tariffs. In the short term, there can be no damage control through renewables. But in the long run, the importance of renewables will be underlined. Domestic production of components is going to be the key for renewables to scale in India.”

According to the latest report published by the energy think tank Ember and Climate Risk Horizons, 27 GW of proposed new coal power plants in India could deplete scarce public resources, lock consumers onto high electricity prices and threaten India’s renewable energy ambitions.

The report suggests that India does not require additional coal capacity to meet its power demand growth by FY 2030. Surplus coal plants can be scrapped without sacrificing the power infrastructure’s ability to meet future demand.

Gagan Vermani, CEO and founder of MYSUN, a rooftop solar company, felt that the current crisis is an opportunity for policymakers to look for alternatives to coal.

“Solar as an energy source is amongst the fastest ways to ramp up in terms of capacity build-up. Therefore, the first attempt should be to remove any roadblocks that exist today for Solar’s rapid deployment, and one of them is the impending basic customs duty from April 2022.”

According to Sharad Pungalia, Chief Commerical Officer, Amplus Solar, large consumers would undoubtedly increase their reliance on renewable energy sources.

“But the results for the renewable energy sector can be seen in the medium to long run. However, I see a negative impact on the renewable sector with higher costs and lower supply issues in the short term. The manufacturing issues, especially in China, will create delays in the module and cells supply and lead to an increase in prices. Under-development projects would face high-cost overruns and delays.”

Higher tariffs or power curtailment?

Will the coal shortage affect the existing power tariff? No, says Vinay. “DISCOMs cannot raise the tariffs on account of rising coal costs. They could work on tariff adjustment by asking the regulators to raise the tariff next year. Such hikes take time and cannot be introduced overnight.”

He said that a mere 1% of the power is traded in the market, “DISCOMs can buy power from the market, but it will bleed them, especially during peak hours. There will be outages and curtailment. States like Andhra Pradesh and Telangana, which have introduced 24/7 free electricity for agriculture, may see some curtailments. The agriculture sector stands to lose more power than the commercial and residential segments.”

Sharad felt that any curtailment would be disastrous when power demand was at a high. “I don’t think the sector can afford power curtailments at this juncture. The utilities would be under tremendous pressure to maintain power supply in this high-demand harvesting and festival season. Power curtailment would be disastrous for the manufacturing sector, trying to recover after the pandemic slowdown. Considering the various factors, I would believe we would see a rise in power tariffs.”

This current coal shortage and rising prices can be partly attributed to the spike in power demand emanating from an uptick in economic activity. Also, most power producers were not stocking enough coal.

However, there are signs that Coal India, which accounts for almost 80% of the domestic coal output, is ramping up capacity fast. Also, some of the larger independent power producers are almost entirely reliant on imported coal from captive mines outside India. In the short term, there may be some sporadic curtailments.

Meanwhile, private power producer Tata Power tweeted that it had enough backup to ensure no disruption in supplies to its consumers. “Tata Power supplies power to its customers in Mumbai by a combination of imported coal-based plants at Trombay, hydropower plants near Mumbai, and some renewable assets. Considering that it has diversified sources of supply by Tata Power, mostly from plants nearby to Mumbai, the guarantee of supply along with adequate quantity with adequate backup will be ensured,” it said.