Coal Availability: Biggest challenge for Indian Power Sector
Author: Yashaswi Gyanpuri, MBA (PM), PGDC (TPPE), B.Tech (Elec.)
India a developing country has been witnessing challenges in Indian power sector, with a power deficit of 8.5 percent1. The demand of power is increasing day by day, driven by high economic growth and rural electrification; however unable to supply the demanded power due to fuel shortage. Out of Installed generation capacity2 of 225 GW, almost 58 percent3 of electricity is generated from coal i.e. Coal based thermal power stations. Over the last 5 year, the demand for coal is growing at rate of 8-9 percent 4 annually as compared to a 5–6 percent increase in domestic production. This has widened the demand/supply gap, leading to growing dependence on imported coal.
Production of raw coal during 2012-2013 was 452.211 MT 5 as against 435.84 million tonnes produces in 2011-12, which represents a growth of 16.371 million tonnes in absolute terms over the corresponding period last year, whereas the total domestic coal requirement for the year 2013-14 stands at 516 MT 6. Power Utilities have been advised to import 50 Million Tonne (MT) 7 of imported coal for power plants designed on domestic coal in view of the shortfall in domestic production of coal during 2013-14. The total expenditure on import of coal for the year 2013-14 is expected to be around 6,560 Million USD8.
According to industry sources, Coal requirements for the power sector are projected to reach to about 800 MT by 2017 and increase to 1070MT by 2022. However, domestic coal supply is projected to increase to 554 Mt by 2017 and 756MT by 2022. Total Coal imports are projected to reach about 200 million tonnes by 2017.
We, however, believe that imports of coal could be the next big challenge that we may face. This is because, in the past few years, while demand for coal has continuously grown, production levels have largely failed to meet demand. The situation is unlikely to change in the near future, making our dependence on imported coal even larger. This will possibly impact India’s current account deficit (CAD) in a far more adverse manner. There is no concept of net coal imports; coal is not exported except limited amounts to Nepal and neighboring countries. Hence the impact could be magnified; more than what many of us could actually believe.
In the context of coal availability, India currently faces a huge shortage of domestic coal leading to a large-scale domestic coal deficit in the power. India is the fourth largest coal producer in the world, but still huge gap in demand and supply of coal. This is one of the serious concerns and needs to be addressed immediately as domestic and imported coal prices are on a rise, which, in turn, is paralyze the economics of the power sector. With Coal India assuring to supply only 65% of the contracted quantity to domestic linked customers for the first three years of the FSA, the coal imports will only move northwards.
The Key Solution is near: What are they?
A) Fuel supply agreements – a solution to power crisis?
The unavailability of coal affecting the running power plant but do also impacts the viability of future power projects. In order to secure the fuel availability to power producers, GOI issues directives to CIL. The major points in directives are :
- Criteria for FSA will be long term PPAs with DISCOM, and duration of FSAs will be signed for a period of 20 year and will be reviewed in every five year.
- The FSA will sign 80% ACQ (Assured contracted quantity) of committed coal supply. And penalty was very less and applicable only after 3 year of agreement.
- If CIL unable to meet demand, that can be shortfall through imported coal (If buyers are ready).But CIL will not be responsible for the transportation of Coal from dock to Plant area.
They were many power company have raise the concern about the terms of FSA and not willing to sign the agreement. Thereafter, the opposition of Power producer, GOI intervenes to resolve the issue between CIL and power companies. PMO suggested a revision to CIL’s new FSA and Government proposed the penalty from (0.01% to 20-40%), depending on the level of supply shortfall below the level agreed upon (65 percent). The PMO has also asked CIL to remove the three-year moratorium on penalty,
The proposed changes are acceptable to some power producers, and the NTPC has agreed to sign FSA.
In order to resolve the power crisis, the government should take a holistic approach – considering the interest of various stakeholders, eliminating blocks to increased domestic coal production and allowing generation companies to pass high-fuel costs on to end consumers (fuel price oriented market).
There are some of the measure that could help to resolve Indian coal shortage:
- Enhance the domestic coal production capability
- Build’s CIL import capability
- Hike in power tariff to compensate the cost of imported coal.
B) Privatization of Coal India Limited (PPP Model)
I believe that the government should immediately push competition in the coal sector by privatizing Coal India Ltd and its major subsidiaries, by making suitable amendments in the Coal Mines (Nationalization) Act, 1973.Majorly competition in mining sector.
I will be covering in the next part of the article.
Source of information:
1. Current scenario, CEA
2. Report, Current installed generation status, CEA.
3. Current scenario Report, CEA
4. Growth status, Ministry of Coal and CIL
5. Current Production Report, CIL
6. Estimated coal requirement report,CEA
7- Press Information bureau (PIB), Min of Power.
8- Press Information bureau (PIB), Min of Power.
9- Presidential directive to CIL on supply to power cos”, Financial Express, 4 April 201