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Baba’s Explainer – Australia Electricity Crisis

  • IASbaba
  • June 25, 2022
  • 0
International Relations
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Syllabus

  • GS-2: Effect of policies and politics of developed and developing countries on India’s interests
  • GS-3: Economy & Challenges; Energy Security
  • GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context: An energy crisis in Australia has seen prices spike and supply issues plague much of the country’s east. This is astonishing given that Australia has good resources for power generation.

  • Australia is a major fossil-fuel exporter. Its domestic consumption of coal and gas has grown only 8% in two decades, while exports of coal have more than doubled and exports of gas have increased more than 10-fold.

How did the electricity crisis unfold?
  • Electricity prices have been skyrocketing in Australia since May 2022 for a combination of reasons. Since the prices kept on increasing the Australian Energy Market Operator(AEMO) announced that prices would be capped at A$300 and generators would be compensated.
  • The A$300/MWh price cap, however, was A$100 to A$200 lower than what several power generators were spending on one megawatt-hour.
  • Consequently, many of them decided to withhold capacity and not offer it on in the wholesale market, creating a gap in demand and supply.
  • More than 10 per cent of the power generation capacity had been withdrawn from the East Coast
  • Owing to many generators withdrawing from the market and fears of power blackouts, the AEMO had to trigger a mechanism called the Reliability and Emergency Reserve Trading (RERT), telling generators to fire up their power plants again to meet the supply.
    • Notably, this mechanism ensures a more profitable compensation for generators.
  • The government of New South Wales invoked emergency powers to oblige miners operating in the state to redirect coal exports to local generators. The precautionary move was taken to strengthen energy security on the advice of AEMO.
    • On the East Coast, coal-fired power constitutes nearly 65 per cent of electricity generation and gas 7 per cent, with the rest coming from renewable sources like wind, solar, hydropower, and others.
  • Australian government in the east has asked consumers to conserve energy by turning off lights and using white goods in the evening so to avert the risk of blackouts.
What are the factors that led to the current crisis?

The larger crisis in Australia’s energy sector has been ongoing since May.

  1. State of coal-powered plants
  • While Australia still depends on coal for two-thirds of its power generation, the country’s coal-fired power stations are ageing and are not in a stable condition. Many of these have also been marked for closure.
  • Also, nearly 25 per cent of the eastern market’s 23 gigawatts of coal-fired capacity has been out of service over the past month, with as high as 30 per cent being unavailable at times.
  1. Soaring coal and gas prices
  • Global supply chains have been hit by the ongoing Russia-Ukraine crisis and the sanctions on Russia.
  • Due to untimely domestic shortages, many Australian power generators were forced to secure oil and gas on spot markets, sending production costs skyrocketing.
    • Domestic gas prices spiked to such high levels that AEMO intervened to cap prices at A$40 per gigajoule (GJ).
  • The soaring prices of raw materials like coal and gas also had a domino effect on electricity prices, which again led the AEMO to introduce the A$300 price cap
  1. Domestic coal output hit
  • Instances of heavy flooding in NSW and Queensland in earlier 2022 affected the coal capacity in mines.
  • Besides, owing to technical problems, output has been curbed at the two mines that has disrupted the overall supply.
  1. Early winter
  • A cold snap owing to the early arrival of winter drove up gas demands for heating households, while gas also needed to be diverted to fire up gas-run power stations owing to the power crunch.
  • Meanwhile, Liquified Natural Gas (LNG) exporters on the east coast had been selling as much gas as possible into the export market in absence of Russian supplies.
  • The market operator did order the exporters to divert any uncontracted gas they had into the domestic market, but it wasn’t enough.
Why was Western Australia saved from the crisis?
  • Interestingly, while Western Australia also has its own wholesale market, a built-in safeguard prevented the state from facing a power crisis.
  • In the 1980s, the State had adopted a Domestic Gas Policy, reserving LNG equivalent to 15 per cent of all exports from the Northwest for domestic use.
  • This means that apart from domestic-only power projects, Western Australia has, at all times, gas reserves for ensuring supplies for its gas-fired plants.
What are the implication for the world due to Australia-Power grid debacle?

1. Increase in energy protectionism

  • Large energy producers like Australia are threatening to limit coal and gas exports in an effort to serve domestic demand and keep a lid on domestic prices.
  • The US has considered doing this for oil and Indonesia has already restricted exports of coal this year.
  1. Building Large Strategic Reserves
  • Large strategic reserves of fuels, centrally coordinated, will become national priorities.
  • The US and Europe already have significant strategic reserves, but many countries (including Australia) operate on much thinner storage margins or none at all.
  • Countries which are energy dependent on imports will think about building large reserves as a way to make the entire energy system more resilient to climate and geopolitical events.
  1. Need to invest in transition of renewable energy
  • The energy crisis highlighted the failure of Australia, one of the world’s largest producers of fossil fuels, to prepare for the transition to renewable energy sources by investing in modernising the country’s electricity infrastructure.
  • Thus, any country has to be prepared to transition its electricity infrastructure to renewable energy.
Is India having any power challenges?
  • Despite high coal production, thermal power plants in India are suffering from shortages
  • Several States across the country are expected to face coal shortages, a scenario that can lead to power shortages with India entering the peak power demand season from April to October.
  • Also, the high global coal prices and below normal imports will further exacerbate the crisis.
  • In fact, coal supply shortage is playing out at a time when power demand is rising and is expected to surpass the July 2021 peak power demand of over 200 gigawatts (GW).
  • The daily peak power demand for Q4 FY22 averaged at 187 gigawatts (GW). During April 1-12, the average daily peak demand was more than 194 GW.
  • Prices in spot markets are also at multi-year highs. The market clearing price (MCP) at the Indian Energy Exchange (IEX) in FY22 stood at around ₹4.4 per kilowatt hour (kWh), which is the highest in the last 10 years.

What is causing this crisis?

  • Depleting coal supplies at thermal power plants, the mainstay of India’s power sector, has resulted in this crisis.
  • Coal-based power generation, with a capacity of around 210 gigawatts (GW) of the total 396 GW, accounts for about 53 per cent of India’s total power capacity as on March 2022.
  • Experts predict that depleted coal supplies at power plants will lead to power outages, a scenario that played out in September-October 2021.
  • Due to high demand and interruption in coal supply (mainly due to heavy rains), the coal stock at power plants fell sharply leading to power outages in several States.
  • With concerted efforts of the government, the stocks rose to levels which is sufficient for an average of 10 days at 85 per cent of the plant load factor (PLF).
How critical was the coal shortage in India?
  • The situation at thermal power plants is deteriorating consistently and had reached critical levels.
  • As per the National Power Portal, 11 imported coal-based (ICB) power plants had critical stocks, as on April 13.
  • Similarly, 79 domestic coal-based power plants were facing critical stocks of the key commodity on the same day.
  • Again, on April 13, of the total 173 coal-based power plants, the total stocks available were 23.17 million tonnes (MT) against a daily requirement of 2.76 MT. The stocks at this level will last for less than nine days.
What steps government took to tackle this problem?
  • To begin with, the government has issued revised coal stocking norms, which mandate the power plants to maintain sufficient stocks at all times; if necessary, through imports for blending to meet any contingent situation.
  • Besides, an Inter-Ministerial Sub Group with senior officials from Ministries of Power, Coal, Railways, CEA, CIL and SCCL meet regularly to take various operational decisions to enhance supply of coal to thermal power plants
  • Power Ministry has advised power plants to import about 36 MT coal for blending during 2022-23 with a view to build sufficient coal stock at Power Plants.
  • The Ministry also has a Core Management Team (CMT) to ensure close monitoring of coal stocks at thermal power plants (TPPs) and operational decisions are being taken in CMT to augment supply of sufficient quantity of coal to the TPPs.
Why is this power crisis recurring every year in India?
  • Power plants in India having low supplies of coal is not a new phenomenon. The shortage occurs almost every year and the government, despite its various measures, has not succeeded in overcoming the problem.
  • At the heart of the issue is the lack of planning and coordination between various ministries involved in the process — Power Ministry, Coal Ministry and Railways.
  • While the Coal Ministry blames the Indian Railways for non-availability of adequate rakes, the Railways has pointed out the mismanagement in loading and unloading of rakes by the Coal India (CIL).
  • Despite high coal production and despatch by CIL and other PSU miners, the supply at power plants has still not gone above 15 days in the last six months and lack of coordination and planning is to be blamed for this.

Mains Practice Question –Australia though blessed with rich resources has been facing energy crisis in recent times. In this context, what lessons does Australia power crisis has for India?

Note: Write answers to this question in the comment section.


 

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