Power Ministry asks thermal units to import coal for minimum 10% blending

Synopsis: The present problems in the coal sector need a long-term solution to avoid such issues in future.

Introduction

To meet the increased power demand in the country, the Centre has asked thermal power generators to import coal for at least 10% blending, citing a shortage of domestic coal supply. This is a sharp reversal of its earlier directive of using domestic coal. 

Note: The Centre in 2017-18 had tried for zero coal imports, but it led to a shortage, compelling thermal units to resume the import of coal later.

Why the government permitted imports? 

The share of coal-based generation increased from 62% in 2019 to 66% in the August-September period.  Total coal consumption during the same period increased 18% over the corresponding period in 2019. 

Currently, 16.8 gigawatt (GW) of power generation capacity has zero days of coal stock and 25 GW has less than three days of coal. So, the government decided to permit imports.

What is the reason for the mismatch in demand and supply of power? 

Increased demand-As per the power ministry, the revival of the economy had led to an increase in demand and consumption of electricity. 

Inadequate supply– supply from Coal India is not commensurate with the requirement. 

The Centre mentioned that some states are not supplying power to consumers and imposing load-shedding in some areas. On the other hand, several states were selling unallocated power from central generating stations on power exchanges “at a high price“.

Panic buying: With coal supply and electricity shortage looming, several power distribution companies are panic buying on the power spot market.

The issue of “Power purchase agreements”: PPA is a legal and commercial document between a power producer as seller and the wholesale energy purchaser like the state electricity boards, as a buyer. Under this, the producer will agree to produce and deliver power to specified users for a fixed price.

The PPA’s mandates power not to be sold on exchanges and also that it usually runs for around 15-20 years, the sudden eventuality is not taken care of, hurting the producer of electricity. 

Imported coal-based plants argued that it was absolutely ‘unviable to’ have a fixed-price agreement.

What is the government target with regard to coal import? 

As part of the ‘Aatmanirbhar Bharat initiative’, the government decided to reduce the import of coal. Union Minister for Coal said India would have zero coal imports by 2023-24 

What can be done to improve the situation?

India can permit supplying the power through power exchanges so that whenever there are such fluctuations in the market, the generators have the flexibility.

India can follow steps like China. Recently, China announced a major policy change for its crisis-ridden power sector by allowing coal-fired power plants to charge their industrial and commercial customers market-driven prices. This is being done to pass on the high costs of coal to the users. India can also permit such bold moves. 

Source: This post is based on the following articles

• “Power Ministry asks thermal units to import coal for minimum 10% blending” published in “Business Standard” on 13th October 2021.
• “Power crisis: Lessons for India from China’s power policy changes” published in “Business Standard” on 13th October 2021.