Context: On June 10, India’s power demand touched a record high of 211 MW even as the coal shortage continued with coal stocks available only for eight days.
To bridge the gap between shortage in domestic supply and increasing demand, power-generating companies or ‘gencos’ were directed to use imported coal for 10% of their requirement, failing which their domestic supplies would be cut.
Why does India have a recurring power crisis?
Coal
India is the second largest producer of coal, with reserves that could last up to 100 years. Despite that, year after year, the shortage of coal supplies continues to be an issue.
The domestic production of coal stagnated between FY18 and FY21, but revived in FY22. The power demand too surged owing to economic recovery and hotter weather conditions.
This dip in imports can be attributed to the skyrocketing prices of coal in the international markets. The price of imported coal is nearly 5-6 times higher than domestic supply. It is in this scenario that the Power Ministry asked the gencos to import coal. However, States are wary of using imported coal as it would raise the cost of power substantially.
The shortfall in domestic supplies and the rising cost of imports have put power plants in a precarious situation. About 79 of the 150 plants that depend on domestic coal had critical stocks (<25% of the required stock). Eight import-based coal plants were also at critical levels.
Perennial bottlenecks – The Discoms
The use of imported coal will also push up the price of power supply to the power distribution companies or ‘Discoms,’ often dubbed as the weakest link in the power sector chain.
Discoms owe long-standing dues to the gencos. Delays in payments by discoms create a working capital crunch for generating companies which in turn inhibits them from procuring an adequate quantity of coal.
Discoms are bleeding because the revenue they generate is much lower than their costs. This is evident from the huge gap between the average cost of supply and average revenue realised. Tamil Nadu, Jammu and Kashmir, and Rajasthan have the widest gap between revenues and expenses of discoms.
Apart from providing power at cheaper rates, some State governments do not revise tariffs periodically.
Further, the delay in getting compensation from the government also compounds the woes of cashstrapped discoms.
