In today's Finshots we talk about the power crisis brewing in this country


The Story

There’s a power crisis brewing in this country. Several coal-powered plants in India are now running out of steam and if the supply gap isn’t plugged quickly we may have to deal with a whole host of problems. According to one article in the Economic Times, the average coal stock held by Indian coal-fired plants seem to have dwindled to a three year low. Nearly 100 of the 135 plants had less than seven days worth of buffer coal stock as of Sept 13, when guidelines mandate plants to hold at least two weeks supply. What’s more — Six plants had already run out of coal when the story was originally reported.

So how did we get here and what are the possible implications?

Well, India is the world’s second-largest producer of coal. We have coal resources amounting to 319 billion tonnes (as on 2018), and we’ve largely been dependant on these little black nuggets for most of our energy needs.

In fact, coal was considered so important that during the early 1970s, the government nationalized most coal mines, thereby permitting only government-owned entities to participate in coal mining. This eventually led to the birth of Coal India, and the company is now responsible for over 80% of the nation’s domestic production.

Unfortunately, they’ve not been very efficient in meeting production quotas. Which means whenever you see a rise in demand for electricity, there’s the usual scepticism on whether Coal India would rise up to the task. In fact, on many occasions, they haven’t exactly risen up to the task and we’ve had to import coal from other countries.

Just earlier this year, when Australia and China were in the midst of a bitter trade war, India sneaked in and imported record amounts of coal from Australia at a discounted price. And it’s something we’ve been doing for a while now. But despite the import program, demand for electricity has rebounded so spectacularly, that India is now struggling to divert coal supplies to plants that desperately need it. India’s electricity demand reached its highest since July 2019 and poor performance from hydropower plants have thrust coal plants to the forefront.

Officials are even considering reducing the benchmark from the 14-day benchmark of coal stock at thermal power plants to 10 days to enable more fossil fuel supplies to projects with “extremely depleted stocks.” This way they’re hoping to divert supplies from those harbouring low stocks to extremely low stocks. They’re also trying to mobilize the entire power generation grid in an attempt to avoid any major disruptions.

But many states are already feeling the pressure. They’re being forced to buy power on the power exchanges. If you don't know what that is, just think of it as a place where you go to buy power on the spot. Unfortunately for these states, prices on the exchange have also been on the rise and it’s creating a massive  headache for all parties involved. The government has even asked the Tata’s and the Adani’s to fire up their plants and sell power on the exchange to rein in prices.

Then there’s the fact that aluminium manufacturers are also miffed with Coal India. These people generally run their own power plants to meet production needs. But since coal supplies are being diverted to power plants elsewhere, they’re having to get by without much support.

So yeah, all in all, a sudden spike in demand and a lacklustre response from power plants in procuring supplies, has precipitated a mini crisis in the power industry.

Until next time...

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