Will India face another power crisis this summer?

The power ministry is also expediting coal linkages under its SHAKTI policy, which provides coal linkages to power plants that lack fuel supply agreements through coal auctions.

It is only February and parts of India are already recording “markedly above normal” (5.1 degrees Celsius or more) maximum temperatures, according to the India Meteorological Department (IMD) bulletin issued on February 27. As a result, India’s power demand has also increased substantially, forcing the government to tighten monitoring of coal supply at thermal power plants and ensure swift implementation of the SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) policy, among other measures.

The power ministry, without any delay this time, has already issued two significant orders. For one, it asked all coal-based power generators to mandatorily blend 6 percent imported coal, and two, it invoked section 11 of the Electricity Act, 2003, again so that all thermal plants using imported coal generate at their full capacity.

Last year, these orders were issued from May, by when the power crisis had already taken hold. In April-May 2022, many states in the country faced hours of outages because of an unrelenting surge in power demand due to heatwaves, rapid economic recovery and shortage of coal to generate power. This happened despite record coal production by Coal India in 2021-22 and authorities scrambled to manage demand amid dwindling coal supplies.

Coal transportation will continue to be the biggest challenge

It is likely that a coal shortage at thermal power plants (TPPs) will recur this time as well. However, the impact might not be as much last year because of the government’s multipronged strategy. Some 70-80 percent of India’s electricity production comes from coal-fired power plants.

In October last year, Union coal minister Pralhad Joshi said up to 40 million tonnes of coal will be available with TPPs by March. Later, in November, the coal ministry in a statement said it would augment coal supplies at TPPs to 45 million tonnes by March-end. However, data showed that maximum coal stock at TPPs hasn’t crossed 31-32 million tonnes so far.
“The quantum of coal is available. The coal ministry can provide 45 million tonnes to TPPs, but there still are constraints in logistics, even as the railway ministry is trying to address it,” said a senior coal ministry official, requesting anonymity.

However, according to the railway ministry, the issue has emerged because of higher coal production at select sites compared to others. “Maximum coal production has happened at the sites of Mahanadi Coalfields Ltd, Singareni Collieries Company Limited and Northern Coalfields Limited and, hence, our railway lines have reached saturation point there. The other places such as Central Coalfields Limited and Western Coalfields Limited, where there is scope to lay more railway lines, the coal production is fairly low,” said a senior railway ministry official, also requesting anonymity.

The ministry has also augmented its coal-carrying capacity. “Last year, railway rakes for coal transportation was around 320-325 rakes per day, this time it will be increased to 480 by April,” the official said.

NTPC to generate 5,000 MW through its gas-based plants

Alok Kumar, secretary, ministry of power, told Moneycontrol that NTPC Ltd, the country’s largest power generator, has been asked to run its gas-based power stations and generate 5,000 MW from those plants from April 15 to May 15.
“So about 12,000 MW generation from imported-coal-based power plants we have taken care of with the Section 11 order. The generation of thermal power plants in general will also increase due to the other order of mandatory 6 percent imported coal blending. Now, NTPC’s gas-based power plants will add 5,000 MW more during peak summers,” he said.
The state-run power generator has 4,017 MW of gas-based capacity in Uttar Pradesh, Gujarat, Rajasthan, Kerala and Haryana. Another 2,494 MW capacity is through its joint ventures or subsidiaries.

SHAKTI policy, HP-DAM – other measures

The power ministry is also expediting coal linkages under its SHAKTI policy, which provides coal linkages to power plants that lack fuel supply agreements through coal auctions.
“The bidding process under B(v) of this policy is over. B(v) is aimed to help states get power during such crises by aggregating their demand. We are analysing the bids at the moment and supply of electricity will commence from April 2023. The procurement of aggregate power in this was 4,500 MW. For merchant power plants also, regular auctions are being conducted so that they keep getting regular coal till they get a power purchase agreement (PPA),” said a senior power ministry official, asking not to be identified.

The launch of the high price day-ahead market (HP-DAM) segment at the Indian Energy Exchange (IEX) in mid-March will also give states, the Centre as well as private utilities another avenue to meet demand in times of shortages.
“HP-DAM will definitely help in spot purchase of power from gas-based power plants and imported-coal-based power plants. Now that NTPC will operate its gas-based plants for a month and IPPs (independent power producers) also have to mandatorily generate at full capacity, it will help them sell their costly power in the exchange. Until now, they were unable to participate in the power bourses because price in all the other segments is capped at Rs 12 per unit. In HP-DAM, the price will be above Rs 12 per unit and will be capped at Rs 50 per unit,” said Rohit Bajaj, IEX's business development head.

So will India face a power crisis again this summer?

Kumar said the situation will depend on how much peak power demand will jump.

“The increase in the power consumption is quite substantial. To give you a sense of the situation, in February alone, so far, we have seen a 9-10 percent spike in electricity demand compared to the same period last year. But we will ensure that there are no widespread power cuts or any unplanned load shedding. We are preparing in anticipation of a demand of 230 GW for this year. Every stakeholder has increased their capacities, which takes a lot of time. The coal ministry has increased its production, the railway ministry has also laid new lines and increased its rakes. But the power demand is increasing even faster,” he said.

Tata Power CEO and MD Praveer Sinha told Moneycontrol in an interview on February 8 that the demand may even touch 240 GW, surpassing the government’s forecast.

“All the plants in the country, including the imported-coal-based plants, are geared up. Many of the renewable capacities that were added in the last one year will start generating power. The government has resolved several issues in the past two years. Transportation arrangements have been made, which have helped in better availability of coal in power plants, barring a few stray incidents. However, some areas might experience shortage due to non-availability of railway lines, but by and large, coal availability has been quite consistent,” Sinha said.

Somesh Kumar, partner and leader, power, EY India, said this year too could be quite challenging, but added that the measures taken by the government could result in higher power tariffs. “The power ministry is estimating a peak of 229 GW in April 2023 itself. The mismatch between demand and supply of domestic coal continues. Hence, MoP had directed for increased blending norms for imported coal. It has also invoked Section 11 and directed all imported-coal-based power plants to operate at full capacity and provided enabling provisions for pass-through of excess costs, sale of surplus power, etc. It is hoped that these measures alleviate the potential shortage situation, though it may have an impact on power prices,” he said.

However, Ashok Khurana, director-general, Association of Power Producers, said demand is unlikely to touch 230 GW and that the country may not face a power crisis this year. “With all the measures relating to imported coal, and pooling of tariff of thermal plants with gas-based stations, coupled with increased domestic coal and wagon availability, we are sure that India’s generation would be able to meet the rising demand,” he said.

Vibhuti Garg, Director, South Asia, IEEFA (Institute for Energy
Economics and Financial Analysis) pointed at the slow pace of capacity addition of renewable energy over the past year or so. "While renewable energy is growing, it is not going growing at a pace to meet this India's power demand. Power from solar is way cheaper and it can be built in a short span on 12-18 month. That should have been the way forward. But, unfortunately, the government has been imposing high basic customs duty on imported equipment to promote domestic manufacturing, but it has come at a cost of not having enough renewable energy in the country. To meet our nationally determined contributions (NDCs) we need to add 30-35 GW of renewable energy annually.  Last year we could add only about 15 GW and this time also we be closer to 15 GW only," she said.