English Article

How to Shock-Proof India’s Power Sector

The efficiency of thermal plants must be increased and regulators empowered to bring down losses.

In October last year, India witnessed significant power shortages stemming from the low inventory of coal at the power plants. After seven months, we are back to square one as reports of coal-shortage induced power outages across states continue to pour in. On the one hand, there is a rush towards buying expensive coal and power on the exchanges. On the other, states like Andhra Pradesh and Gujarat have asked industries to reduce consumption to manage the power deficit. As economic activity resumed after the Covid-induced lockdowns, the demand-supply mismatch for commodities such as coal widened globally, leading to a surge in prices. Geopolitical tensions have exacerbated the existing crisis. Amidst such unprecedented volatility, how can the Indian power sector become more resilient to future shocks? Global supply disruptions due to the Russia-Ukraine conflict have sent coal prices touching historical highs. The cost of imported coal in India is expected to be 35 per cent higher in the fiscal year 2022-23 compared to the past year. Subsequently, power producers paid a premium of up to 300 per cent in March to secure coal supplies in the domestic spot market. Even as coal stocks available with state thermal power plants fell, India also witnessed a sudden rise in energy demand in March — the hottest in its recorded history. This pushed peak power demand to 199 GW in the middle of March. The last week of March saw a 13 per cent higher demand over past year trends, accompanied by high electricity prices on the power exchange. This has left distribution companies (discoms) with two options: Procure expensive power, but face uncertainty in revenue recovery or resort to power rationing, as several states are doing. The Ministry of Power has taken a host of measures to alleviate the crisis. This includes giving directions to ensure maximum production of coal at captive mines, rationing of coal to non-power sectors, and a price cap of Rs 12 per unit on electricity traded on exchanges. But we need to do more to enhance the sector’s resilience to such disruptions from exogenous factors.