How to shock-proof India’s power sector

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Last Updated30/04/2022

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.

Russia-Ukraine conflict has sent coal prices touching historical highs.
The cost of imported coal in India is expected to be 35%higher in the fiscal year 2022-23 compared to the past year.
Subsequently, power producers paid a premium of up to 300% 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.

Giving directions to ensure maximum production of coal at captive mines,
Rationing of coal to non-power sectors
A price cap of Rs 12 per unit on electricity traded on exchanges.
But it is more required to enhance the sector’s resilience to such disruptions from exogenous factors.

Creating an enabling ecosystem
- To ensure power plants work efficiently.
- India has about 200 GW of coal-based generation capacity which accounts for nearly 70% of the total electricity generated in the country.
- CEEW assessment - a disproportionate share of generation comes from older inefficient plants
  - Newer and efficient ones remain idle for want of favourable coal supply contracts or power purchase agreements.
Enabling discoms to undertake smart assessment and management of demand
- India has advanced tools for medium- and short-term demand forecasting.
- However, few discoms have embraced these to inform their procurement decisions.
- More than 90% of power is procured through long-term contracts, so, discoms have little incentive to dynamically assess and manage demand.
- Introducing time-of-day pricing and promoting efficient consumption behaviour would help shave peak demand and avoid panic buying in the market.
Empowering electricity regulators to help bring down discom losses.

Despite two decades of sectoral reforms, the aggregate losses of discoms stand at 21 % (2019-20).

Given the country’s development aspirations, India’s power demand is set to rise substantially and become more variable.
Increasing climatic and geopolitical uncertainties underscore the need to become more efficient in the way we generate, distribute and consume energy.
We need to act now for the long-term resilience of India’s power sector.

Prelims Takeaway

Mains Track

Q. Discuss the problems faced by the power sector in India. Suggest some measures to tackle these problems.