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Power outages likely as summer demand kicks in while power plants scramble for coal

A sudden increase in temperature has led to increased demand for electricity, while a scarcity of coal is increasing costs. These two factors could lead to outages this summer.

April 06, 2022 / 05:26 PM IST

Power shortages hit many states in India in March and as coal supplies struggle to match growing demand, cities and smaller towns are likely to face significant outages again this summer, bringing back memories of the crisis in October last year, one of the country’s worst in five years.

Peak power demand met, or the highest supply, in a day rose 12 percent to 198.47 gigawatts on April 1 from a year ago, according to data from the power ministry.

The sudden rise in temperature, lack of adequate coal, and an increase in international coal prices, electricity supply is being restricted in states such as Punjab and Gujarat.

Punjab relies heavily on thermal power plants for electricity. However, units that supply the state have been suffering from the erratic supply of coal.

Officials said that a unit of GVK Power’s 540 MW thermal power plant at Goindwal Sahib in Tarn Taran and another of the 1,260 MW Guru Gobind Singh Super Thermal Power Plant at Ropar have shut down.

Additionally, Punjab is not getting its share of 475 MW from Tata Power’s Coastal Gujarat Power Ltd. plant at Mundra. A Tata Power spokesperson, however, said the company has “healthy” coal stocks at its units.

“All our units have long-term fuel supply agreements with Coal India and its subsidiaries,” the Tata Power spokesperson said. “Accordingly, we are continuously following up with them for allocation of right quantity and quality of coal along with railway officials for getting timely allocation of rake movement from collieries to the plants. Presently, we are having healthy coal stock in our units.”

Lower capacity

GVK Power did not respond to queries seeking comment on the matter.

Punjab State Power Corporation Ltd. officials said independent power producers are demanding Rs 5.50-6 per unit against an agreement to sell power to the state at Rs 2.90 per unit.

Added to that, two units of the 1,980 MW plant run by Talwandi Sabo Power Ltd. in Mansa district of Punjab are reportedly running at lower capacity due to a coal shortage.

Gujarat has ordered a staggered shutdown of “non-continuous process” industries in key cities. Officials said this was due to power shortages and to facilitate continuous power supply to farmers, according to a Reuters report.

“Demand for coal has gone up, considering the increase in industrial activity in the last few months,” said Rupesh Sankhe, vice president at Elara Capital.

Other states also face challenges. A senior official from the Tamil Nadu Generation and Distribution Company said it is staring at an increase in electricity costs by 3-4 per cent.

India relies heavily on coal to meet its energy requirements through a combination of domestic production and imports. While the share of coal in total installed generation capacity is about 50 percent, its share in total electricity generation is still high at 70-72 per cent, said Vibhuti Garg, energy economist, lead India, Institute for Energy Economics and Financial Analysis.

Spot power tariffs are likely to remain at about Rs 4 per unit in FY23 due to higher coal prices, compared with average spot tariffs of Rs 2.8 per unit in FY21, ratings company ICRA said.

The spike in short-term power prices pushed the Central Electricity Regulatory Commission to step in and ask the country’s electricity exchanges to cap prices at Rs 12 per unit in the backdrop of a surge in demand as prices on the bourses had remained significantly higher.

Coal shortage

“Electricity demand has been increasing substantially in the month of March and touched 199 GW on March 17, 2022. Since then, it has been hovering around 195 GW. Against this increase in demand, on March 25, 2022, 58,719 MW of installed generation capacity was on outage due to various reasons wherein 4,323 MW of thermal capacity was on outage due to coal shortage itself,” the regulator said in the order.

Coal India, the country’s largest producer of coal, had allayed any fears of blackouts.

“CIL is cognisant of the importance of meeting increased coal demand in the power sector as the generation will step into higher orbit with the advent of summer,” the state-owned company said in a statement on March 28. “With sufficient coal in the system and stepping up its production, CIL is geared to meet the summer demand.”

Coal India’s priority is to ensure adequate supplies to the power sector and see that the nation gets power at a just price. The aim is to secure energy at least cost, a company executive said.

Coal India had estimated that it would open FY23 with a stockpile of over 60 million tonnes at its pitheads. The coal miner had supplied an all-time high of 528 million tonnes of coal to the country’s power utilities as of March 24 of FY22.

Coal India also said power plants without power purchase agreements can participate under a separate electronic auction window, which is expected to provide some relief to stressed plants.

While some of India’s energy demand will be met through renewable sources, expecting it to replace coal is highly unlikely in the short term.

India’s demand for coal is expected to increase by 63 percent by 2030 from current levels, minister of coal, mines, and parliamentary affairs Pralhad Joshi said in a written reply in the Rajya Sabha on March 28.

Although India has repeatedly stressed its commitment to sustainable energy and has stated its intent to become a net carbon zero economy by 2070, the country continues to rely on coal.

Renewable energy

“The government is trying to reduce import dependence by ramping up domestic coal production. However, with cheaper renewable energy, investing in an expensive fuel source isn’t the right move. Moreover, getting finance for such thermal plants will become increasingly difficult,” pointed out Garg from Institute for Energy Economics and Financial Analysis.

Meanwhile, the conflict between Russia and Ukraine has disrupted the supply of coal from Russia, which is unlikely to be replaced by other suppliers and this has increased input prices for independent power producers and power distribution companies.

Imported coal prices are set to rise 45-55 per cent in the first quarter of FY23, ICRA said in a report on March 31. The price of Australian coal for March delivery hit an all-time high of about $330 per tonne. Australia and Indonesia are key sources of coal imports for Indian thermal power generation companies.

“Discoms (distribution companies) will have to take a hit in the short term as energy prices are unlikely to come down,” stated Sankhe of Elara Capital. Power discoms can revise prices only after regulatory approvals, which means pressure on them in the short term and therefore, many discoms resort to planned outages.

The price of domestic coal has also risen sharply in auctions conducted by Coal India, with the premium over the baseline price reaching 270 percent in February and climbing further to about 300 percent in March.

(Venkatesh G. is a freelance journalist contributing to Moneycontrol)

Venkatesh G.
first published: Apr 6, 2022 05:26 pm