COAL CRISIS IN INDIA

1. Background

• India is the world’s second-largest producer and consumer of coal. 
• The Indian government recently claimed that there has been an increase in coal production over the past few years due to policy reforms and imports have decreased. 
• But despite the increased domestic production, the country has witnessed a second coal shortage crisis in less than 10 months, with the last one being in October 2021.
• The Ministry has stated that with soaring power demand and power shortage in some areas, the generation needs to be maximized. 
• The ministry has added that despite efforts to increase the supply of domestic coal, there is still a gap between the requirement of coal and the supply of coal, because of which the coal stocks at the generating stations are depleting at a worrisome rate.
• "This crisis is worse than what it was last year as the demand is high. A perfect storm has built up now, and there are many reasons to blame,"

2. Contemporary developments

• The Government of India has stated that with soaring power demand and power shortage in some areas, the generation needs to be maximized. 
• The Government of India has added that despite efforts to increase the supply of domestic coal.
• There is still a gap between the requirement of coal and the supply of coal, because of which the coal stocks at the generating stations are depleting at a worrisome rate.
• Taking note of the fact that the blending of imported coal to the extent of 10% is not happening as stipulated, and the reserve stocks of coal are continuing to dip, Power Ministry issued directions
• Looking into the emergent situation due to the rise in demand and non-adequate supply of domestic coal, all States and Gencos based on domestic coal have been directed vide letter dated 28th April 2022 (copy enclosed at Annexure-l) to import at least 10 per cent of their requirement of coal for blending.
• The States were advised to give timely clearance to IPPs, wherever required in the PPA for blending of imported coal.
• It was also mentioned in the letter that procurement of coal must be done transparently to obtain competitive rates.
• However, it has been observed that the import of coal has not been at the required level.
• Some generating companies are not willing to import coal for blending due to a lack of clarity on compensation on account of blending with imported coal.
• Vide letter dated 13th May 2022, (copy enclosed at Annexure-II) the State Governments and the SERCS were requested to ensure that all generating stations under them take immediate action for importing coal for blending.
• Ministry of Power (MOP) has also issued the direction under Section 107 of the Electricity Act, 2003 on 18.05.2022 to CERC to take suitable action to allow a higher amount of blending with imported coal.

3. Contemporary decisions

In the light of the present emergent circumstances, and in continuation of the directions to import coal for blending, the Ministry has directed that:

• Provision of Compensation to DISCOMS.

• The mechanism for billing and payment for these plants shall be on Weekly Basis.

• In case of default of payment of 15 % of the weekly provisional bill, the generating company shall be free to sell 15 % power in the power exchange. 

• The provisions have a sunset clause that is direction is for coal imported for blending by such domestic coal-based power plants up to 31.03.2023.

3. Why Is India Facing Coal Shortage?

• Coal contributes to over 70 per cent of India’s power generation. Of this, over 12 per cent is import-based coal.
• The Russia-Ukraine war has led to a disruption in international coal supply, making coal import much more expensive and affecting India’s coal import.
• The cost of imported coal in India is expected to rise 35 per cent in the fiscal year 2022-23 compared to the past year.
• As per a report by Indian Express, power producers had to pay premiums of up to 300 per cent in March to secure coal supplies in the domestic spot market.
• The already dwindling coal stock available with state-run thermal plants was further strained after India 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, the Indian Express report said.
• Furthermore, the biggest reason for the coal shortage is the increasing power demand over the years.
• As per a report by the Hindu, in 2021, demand increased to 124.2 BU per month from 106.6 BU per month in 2019. In 2022, the demand has further increased to 132 BU.
• According to the Centre’s core management team (CMT), heavy rains in coal mining areas like Gujarat, Punjab, Rajasthan, Delhi and Tamil Nadu had resulted in lesser coal production.
• Moreover, before the monsoon season, there was inadequate coal-stock build-up in most thermal plants, pushing them below critical levels.

4. What is the Govt doing to mitigate the shortage?

• Government-owned CIL has increased the coal supplies to thermal power stations by 14.2% during the first half of May 2022, compared to the same period last year.
• Coal generation has hit 1.64 million tonnes (MTs) per day compared to 1.43 MTs in 2021.
• The company further informed that it had raised coal production to 26.4 million tonnes during the first half of April, achieving 27% year-on-year growth.
• Additionally, 8.75 MTs of coal will be made available to state and Central generating companies via rail till May 31, 2022, stated CIL. 
• The government has also halted hundreds of passenger trains to many priority routes for coal wagons to reach power plants on an urgent basis.

5. How coal shortage could affect power supply and cost?

• The daily electricity deficit in India has increased from 0.3% to 1% in April 2022, said American credit rating agency Fitch.
• This power deficit has led to an 85% increase in the price of electricity traded on Indian exchanges from an average of Rs 3/kWh to Rs 8.23/kWh in March.
• To regulate prices, CEA has capped short-term power exchange rates to Rs 12/kWh.

6. How does the Centre plan to fix the coal crisis?

• The Center has pleaded with the state governments of coal-starved power plants to start importing coal the second time it has made such a request in recent weeks.
• The Government of India has also allowed states to use its captive coal reserves of up to 25% to meet growing domestic demand.
• It has permitted power generating companies to blend imported coal up to 10% to ease the burden on CIL.
• The Centre is also mulling on increasing the imported coal stock, but higher coal costs make it difficult.