Infomerics study says weak institutions and utility governance hamper the sector’s financial performance.
MUMBAI, June 03 (The CONNECT) – The possibility of stagflation in India in the not-too-distant future cannot be ruled out if the coal crisis at power gencos persists, a report warns.
Out of 173 thermal power plants, 107 plants had critically low stock of coal, the report by Infomerics Valuation and Rating says Quoting government data of May 5 this year. “Should this scenario of severe coal stock shortages persist, the possibility of stagflation in India,” the SEBI-registered and RBI-accredited financial services credit rating company says.
Admitting that it is not always easy to forecast demand with precision and accuracy, Infomerics points out that the “unacceptable situation” this year poses some fundamental questions about the inherent flaws and infirmities in the methodology and modelling of the different growth scenarios of the Indian economy in general and the power sector in particular over the medium-term with assured and uninterrupted supply of power and the ability and willingness of State Regulatory Commissions to subject them to the stringent test of practicality, trend analysis and robustness.
While India has surplus installed power generation capacity, it is struggling to maintain the required pace of energy supply to meet the rising demand, says the report titled Power Sector in India: New Emerging Opportunities and Challenges.
Such chronic situation of energy crisis and unreliable supplies may imperil the process and pattern of India’s economic growth. Fluctuations in the delivery and the price of the energy have a cascading effect on the growth process itself, the report cautions.
The power crisis of October 2021 was ominous with a power shortage of 1.1 per cent but it shot up to 1.4 per cent in April 2022. The situation is steadily deteriorating with states like Andhra Pradesh, Maharashtra, Gujarat, Punjab, Jharkhand, and Haryana facing power cuts ranging from 3 to 8.7 per cent necessitating coordinated and concerted measures with a sense of urgency by all stake-holders, including the government to maintain the regulatory requirement of the inventory of deficient thermal power plants to prevent a crisis, the report analyses.
India has been hit by a double whammy with power consumption in March and April rising by nearly 17 per cent vis-à-vis the corresponding period in 2019 and global coal prices surging by 40 per cent and consequently India’s imports falling to a two-year low. The gravity of the situation is starkly reflected in the Central Electricity Authority’s (CEA’s) report on coal stock on May 5, 2022.
Union Power Minister R K Singh (inset in above picture) held that the problem of outages did not stem merely from shortage of coal but fundamentally because of non-payment of dues to Coal India Limited (CIL) (with state generation companies collectively owing a whopping ₹ 7,918 crore to CIL), delay in lifting coal, and “improper planning” by the states.
The States, however, blamed the Centre for low coal supply. There seems to be a fair measure of agreement that the inability and unwillingness of some power plants to lift coal stems from working capital scantiness because of delayed payment by DISCOMS. Since Coal India and the Railways do not extend credit to the gencos liberally, the gencos are unable to lift much coal despite a fall in their stocks below the prescribed level of 10 days. Average coal stocks at the state-run power plants are of around 12 days or 25 MT at present against the Central Electricity Authority (CEA)-mandated normative requirement of 26 days for pithead plants and 17 days for other units. Supplies from CIL to the power sector were at an all-time high 540 MTs in FY22, which was 98.5 per cent of the pro-rated demand the CEA projected.
Considered in a proper historical and comparative perspective, the provision of electricity has increased significantly over the years. But weak institutions and utility governance hamper the sector’s financial performance with issues of accountability; operational efficiency; customer service; transmission to state level transmission institutions because of extensive losses, leakages and pilferages; and cost recovery from tariffs taking a huge and grossly unacceptable hit, Infomerics reports.
“This kind of a short-sighted myopic policy based on other than economic considerations vitiates the investment environment for the private sector and severely debilitates even the process of maintenance and expansion of the network,” the report says and points out that “such developments unmistakably bring out the compelling necessity of regulatory independence, greater competence, and a much higher degree of accountability all along the line for a discernible and sustained transformation of the ground realities.”
The report also explores the opportunities and challenges ahead for India as it seeks to ensure reliable, affordable and sustainable energy for a growing population.
During FY20 and FY19, the growth of electricity generation was lower than in the previous financial years because of the impact of COVID-19. The report quotes the International Energy Agency (IEA) stating that during FY21 recovery in electricity demand from the COVID-19 pandemic was faster and stronger in India than in EU countries.
India is the third-largest producer and the third-largest consumer of electricity in the world. With the increasing population, electricity demand is rising at a fast clip and India has improved its power generation capacity over the years. India has added more than 500 billion units until FY22 from FY10. The power generation capacity rose from 808.498 billion units (BU) in 2009-10 to 1,381.827 BU in 2019-20.
The power sector in India has 395 GW (Giga Watt) installed generation capacity, 203 GW peak power requirement, 11 per cent installed capacity CAGR (2011-2020) and 67 per cent required hydropower capacity. The private sector with 48.50 per cent has the largest installed generation capacity followed by the Central sector (24.90 per cent) and the State sector (26.70 per cent). Fossil fuel has still higher installation, generating 2,35,929 Mega Watt (MW) of electricity, constituting nearly 60 per cent of the total installed generation capacity.
The report takes note of the current power crisis caused by the paucity of coal. It states that the continued heatwave has led to a rapid rise in the energy demand in states such as Punjab, Uttar Pradesh, Maharashtra, Haryana, and Andhra Pradesh. The northern states are witnessing power cuts amid low coal stocks. Over 150 thermal power plants have a coal shortage problem and the coal stock position of 173 powers plant stood at the sub-optimal level of 21.93 million tonnes (MT), which is less than the regulatory requirement of 66.32 MT as of April 21, 2022. But the power demand rose rapidly from 106.6 BU in 2019 to 124.2 BU in 2021 and further to 132 BU in 2022.
The electricity demand far outstripping the supply despite Coal India recording coal production of 622 million tonnes in FY 22 vis-à-vis 607 million tonnes in FY 21. India’s current daily power deficit rose sharply from the average of 0.3 per cent to 1 per cent with the dreaded possibility of rising even further. Given the paucity of options, most States, including Punjab, Tamil Nadu, Andhra Pradesh, Telangana, Odisha and Bihar, were forced to resort to power cuts, ranging from two hours to eight hours to meet the widening demand-supply chasm.
Natural gas and modern renewable sources of energy have become increasingly important and were least affected by the effects of the Covid‐19 pandemic in 2020. The rise of solar PV has been spectacular; the resource potential is huge, and policy support and technology cost reductions have quickly made it the cheapest option for new power generation.
India is purposefully moving towards the achievement of the goal set by the Intergovernmental Panel on Climate Change (IPCC). The report states that India’s non-fossil fuel-based capacity met the 40 per cent target under its nationally determined contribution (NDC) at COP 21. Solar energy capacity is up from 2.63 GW to 49 GW in the last 7 years.
The report states that India needs a much higher storage capacity for Discoms. But there has to be undivided attention on the pursuit of large-scale grid storage to achieve the avowed objective of creating 500 GW of non-fossil fuel capacity, including 450 GW of renewable energy sources. This is not easy, but certainly doable, it states.
India has achieved significant progress in terms of electricity access in the last two decades. Progress in this area reflects India’s steady efforts in a major policy push. In the last one decade, India has provided electricity to nearly 50 million new users every year, equal to the entire population of Spain. This has been a significant achievement so far in global energy space in recent times. The issue of reliability is, however, also a major concern for India.