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Insights into Editorial: How severe is India’s coal crisis, and what is the govt doing to address it?

 

Context:

India is facing a severe coal shortage. The coal stocks at its thermal power plants can supply just days of fuel. Union Power Minister has said the situation is “touch and go”, and could be “uncomfortable” for up to six months.

The Prime Minister’s Office reviewed the coal stock situation in India’s thermal power plants in a meeting with senior officials of the coal and power ministries.

India’s thermal power plants currently have an average of four days’ worth of coal stock against a recommended level of 15-30 days, with a number of states highlighting concerns about blackouts as a result of the coal shortage.

 

History of coal sector in India:

  1. Coal sector in India started in 1774 with the commercial exploitation of the Raniganj Coalfield in West Bengal by the East India Company.
  2. However, it was only in 1853 when the sector really surged forward with the introduction of steam engine, driving the demand for coal. The two World Wars also contributed to increase in coal production.
  3. The National Coal Development Corporation was set up in 1956 to improve the sector further. The nationalisation of the private coal mines was by 2 phases:
    1. The nationalisation of the coking coal mines in 1971-1972.
    2. The nationalisation of the non-coking coal mines in 1973.
  4. Coal Mines (Nationalization) Act, 1973 was enacted to nationalise all the coal mines in India. It was repealed in 2018.
  5. The demand-supply mismatch started in 1991 (the liberalisation period) and started widening. This led the government to allow captive mining. mining for own use only. This coal cannot be sold to other players.
  6. The 2015 legislation (Coal Mines (Special provisions) Act, 2015) allowed re-entry of private players into the sector. It enabled auctioning of coal mines.
  7. The 2018 Cabinet Committee on Economic Affairs allowed the auctioning of mines to the private players on basis of offer of highest price/ tonne.

 

What is the extent of the current coal crisis?

  1. A number of states including Delhi, Punjab and Rajasthan have raised concerns about potential blackouts as a result of low coal inventory at thermal power plants.
  2. Rajasthan, Punjab and Bihar have already reported load shedding as a result of thermal power plants operating at low capacity.
  3. The shortage in coal is a result of a sharp uptick in power demand as the economy recovered from the effects of the pandemic.
  4. Total power demand in August was 124 billion units up from 106 billion units in August 2019.
  5. A sharp increase in the international prices of coal due to a shortage in China and low accumulation of stock by thermal power plants in the April-June period have also contributed to the coal shortage.
  6. Heavy rains in coal bearing areas in September had also led to a slowdown in the supply of coal to thermal plants.
  7. Coal and lignite fired thermal power plants account for about 54 per cent of India’s installed power generation capacity but currently account for about 70 per cent of power generated in the country.

 

Importance of Coal to India:

Coal is the most important and abundant fossil fuel in India. It accounts for 55% of the country’s energy needs. The country’s industrial heritage was built upon indigenous coal.

Considering the limited reserve potentiality of petroleum & natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India’s energy scenario.

Commercial primary energy consumption in India has grown by about 700% in the last four decades.

Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise.

 

Coal Reserves in India:

  1. Coal is originated from organic matter wood. When large tracts of forests are buried under sediments, wood is burnt and decomposed due to heat from below and pressure from above. The phenomenon makes coal but takes centuries to complete.
  2. Hard coal deposit spread over 27 major coalfields, are mainly confined to eastern and south-central parts of the country.
  3. The Coal resources of India are available in older Gondwana Formations of peninsular India and younger tertiary formations of north-eastern region.
  4. The lignite reserves stand at a level around 36 billion tonnes, of which 90% occur in the southern State of Tamil Nadu.
  5. Top 5 States in terms of total coal reserves in India are: Jharkhand > Odisha > Chhattisgarh > West Bengal > Madhya Pradesh.

 

What is the government doing to address the situation?

  1. Officials at the power, coal and railways ministries are monitoring the coal supplies to thermal plants and have taken steps to increase the daily shipments of coal to power generators.
  2. Coal minister mentioned that coal shipments to thermal power plants had crossed 2 million tonnes against a daily requirement of about 1.87 million tonnes of coal as on October 11.
  3. The power ministry has also permitted power generators using local coal to use up to a 10 per cent blend of imported coal to boost coal stocks.
  4. Despite international coal prices being near record highs, the government estimates that a 10 per cent blend of imported coal would likely lead to a 20-22 paise increase in the per unit (kilowatt-hour) cost of power generation.
  5. Officials noted that generators could seek to increase the price they charge to DISCOMS under Power Purchase Agreements with power distribution companies as these companies are currently meeting shortfalls in power supply by purchasing power at significantly higher rates on power exchanges.
  6. Purchase bids on the Day Ahead Market (DAM) on the India Energy Exchange (IEX) on October 12 were for 430,778 MWh (Megawatt-hours) up from 174,373 MWh a month ago.
  7. Purchase bids far outstripped supply leading to the average market clearing price Rs 15.85 per unit up from Rs 2.35 per unit a month ago.

 

What measures is the government taking to address the situation?

  1. An inter-ministerial team, including representatives of the Power and Railway Ministries, Coal India Ltd, the Central Electricity Authority and Power System Operation Corporation, is monitoring the supply of coal to thermal power plants.
  2. The government is pressing thermal plants with captive coal mines to boost their coal output so that they can meet more of their own demand and is also prioritising coal supplies for thermal power plants with low levels of stock.
  3. The Power Ministry is also trying to increase the supply of coal by expediting the start of production from a number of mines that already have all requisite clearances in place.
  4. Somewhere, the clearances are available, the bidding for MDOs (Mine Developer and Operator) etc is (going on).
  5. Clean coal as an idea has huge potential in India because of the age and inefficiency of some of our plants.

 

  1. With government’s efforts to push renewable energy due to international conventions on climate change, increase in carbon cess and other initiatives for lesser use of coal, there is a need for ‘Vision 2030 for the coal sector’, which takes into account the environmental factors such as reduction of carbon footprint, abatement of global warming.

 

Conclusion:

There is a need for increasing production and competition by leveraging higher producing mines to enable more world-scale operations.

Government should revisit coal grades pricing mechanism from grades based on coal mined to grades based on coal desired for end use.

The government has also boosted the number of rakes of coal being transported to thermal power plants daily with 263 rakes of coal dispatched from coal mines on Monday up from 248 rakes on Sunday.

Government said that it is expected that the despatches from coal lines will increase further.