Supply and payment crisis

Systemic weakness in power sector exposed again

The unusually high temperatures in much of northern and western India have, as is often the case, increased loads on the electricity grid. Together with the post-pandemic resumption of economic activity, this has caused the demand for power to increase by almost 9 per cent monthly and hit all-time highs. It crossed 201 gigawatts late last month, and may increase by another 20 gigawatts as the summer intensifies. Supply is struggling to keep up, with some analyses suggesting that over much of April, it fell short of demand by about 1.5 per cent. As a consequence, some states are facing long blackouts, with hours of load shedding — including in areas essential for economic activity and output. States like Andhra Pradesh have seen power demand jump by almost half as much again as compared to the pandemic lockdown year of 2020. Some of the supply problems, particularly in states like Rajasthan, can be traced to drier rivers causing a reduction in hydropower supply. But in the end, given that more than two-thirds of India’s electricity is still generated from coal-fired thermal power plants, India’s power problems are coal power problems.

There are multiple pain points in the coal-fired thermal power supply chains, any of which can serve as a bottleneck when supply has to be increased at times like these. One is the production of Coal India Ltd (CIL); but, in this case, the state-owned company has claimed it increased output by 27 per cent in April. Even so, coal reserves at power plants have declined sharply and are now at less than a quarter of recommended levels in the overwhelming majority of power plants, according to the Central Electricity Authority. Despatch from coal pitheads has only gone up about 6 per cent, according to CIL. This indicates the primary constraint is either the physical availability of rail transport, or the inability of some purchasers to pay for the coal that has been mined. Indian Railways, responding to criticism about a shortage of wagons and trains to carry coal, says it will cancel 753 trips involving 42 trains over the next weeks to make way for 400 coal transports. This is not a sustainable answer; it is mystifying as to why the Railways has not responded to these regular crises by increasing the availability of coal rakes.

The question of payments to CIL is a similarly vexed one. State-run distribution companies are forced to set unremunerative prices for power. They thus fail to pay generation companies what they owe — dues to power producers are over Rs 1 trillion at the moment. Generators in turn struggle to pay CIL in time, and that state-run company de-prioritises shipments to producers that have large dues. It is vital that both the physical and financial constraints on supply to generation companies be sorted out in a sustainable manner. It is also clear that dependence on coal-fired thermal power is hardly the solution to India’s aspirations of 24/7 power supply. Coal might theoretically be available, but practically it is not there when needed. Some coal-fired power plants are operating at less than half their capacity even as the states in which they are located are forced to purchase power on the spot market. Diversifying the generation mix is essential.