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India’s power crisis is an opportunity to spur clean energy transition

Investing in thermal energy to help India through the power crisis risks diverting limited financial resources away from cheaper clean energy resources 

May 02, 2022 / 03:21 PM IST
Representativ image

Representativ image

Heat waves are sweeping across India, with March 2022 was the hottest March since 1901. The high temperatures have continued in April and this is adding to the woes of the power distribution companies which are trying to meet increasing electricity demand.

India experienced peak demand of 200 gigawatts (GW) in March and April, an increase of 8 percent over the previous year. On April 12, peak power shortage was 8,500 megawatts (MW), and on April 28, it was 10,778 MW, while the maximum demand met was a record 204 GW.

India has a total installed capacity of 400 GW (March 2022), which is almost twice the peak demand. However, around 12 percent of the capacity mix is hydro, which is seasonal, and 28 percent is renewable energy, which is intermittent, and may not be available during peak hours unless firmed up with storage capacity.

Around 51 percent (204 GW) is coal-based, firm capacity. However, coal plants are running at low capacity utilisation with average plant load factors (PLFs) of 68 percent. Coal shortages are a key reason for the low PLFs.

There is a need for greater availability of freight rakes for coal transportation. The power ministry has asked power generation companies to buy their own rakes to deal with logistical constraints in coal supply.

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Also, coal inventories at power plants, on April 1, had an average stock of just nine days, the lowest level since 2014. Power plants are required to maintain at least two weeks of supply. At the start of March, there were 80 plants with critical coal supplies. On April 12 (one of the maximum peak shortage day) this reached 97, and on April 28, it was 108.

Record-high global coal prices mean that bridging the gap in the domestic coal requirement through imports is expensive. Newcastle coal futures, the benchmark for Asia, are around $325 per ton from $90 per ton a year back, supported by skyrocketing demand amid tight supplies of alternative energy products and sanctions on Russian coal.

The increasing power prices will add to the financial woes of debt-laden power distributors which owe Rs1.1 lakh-crore rupees to power generators, especially with global coal prices trading at steep premiums compared to average levels in 2021 due to the Russia-Ukraine war.

Commercial and industrial consumers who rely on open access will bear the brunt of having to source expensive electricity from the open market, with average prices at the power exchange in the range of Rs 9-12/kWh, and peak prices reaching Rs 12/kWh consistently in the last few days. In March, prices hit Rs 15-18/kWh, and in early April the regulator reduced the ceiling price to Rs 12/kWh. The prices in the short-term market have skyrocketed on account of the domestic coal shortage and high imported coal prices.

Power cuts will also dampen the growth of industrial activity. Coal India is cutting supplies of coal to the non-power sector. This means that industries such as aluminium and steel could face power shortages.

How To Tackle The Crisis

The government’s immediate response is to try to avert the crisis by increasing imports and asking captive generators to generate at maximum capacity. Several states have asked idle thermal power plants to resume operations, and are willing to pay higher prices for coal and gas power to stave off a crisis. The power ministry is asking utilities to increase coal imports for blending to 36 million tonnes.

The power crisis has revealed that the cost of coal-based generation is high and, is inflationary. With energy demand likely to go up further, India needs to invest in sustainable energy choices. The government should accelerate the deployment of domestically-produced, deflationary renewable energy.

India has set huge targets for renewable energy by 2030, and net zero by 2070. In order to achieve these targets and to integrate large amounts of renewable energy into the grid, India now needs to push for more firming capacity such as pumped hydro and battery storage.

The government should provide incentives through investing in R&D on energy storage and green hydrogen, and a production linked incentive (PLI) scheme to encourage the domestic manufacturing of batteries and electrolysers for green hydrogen production. Financial support could be provided initially through schemes like viability gap funding (VGF) to make these technologies more affordable. When economies of scale occur, these technologies would become price-competitive, enabling more firming capacity, and an increase in the share of renewable energy.

Investing in thermal energy to help India through the power crisis risks diverting limited financial resources away from cheaper clean energy resources. In addition, investing in a thermal asset at any stage of the value chain effectively locks in investment for 25-30 years, or more.

Vibhuti Garg is Energy Economist and Lead India, Institute for Energy Economics and Financial Analysis (IEEFA). Views are personal, and do not represent the stand of this publication.

 



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Vibhuti Garg is Energy Economist and Lead India, Institute for Energy Economics and Financial Analysis (IEEFA).
first published: May 2, 2022 03:14 pm
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