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News: India is currently going through a power crisis. Consequentially, the government has cancelled passenger trains to allow the Indian Railways to transport more coal to power plants. In addition, the directives have been issued to use more imported coal to tide over the supply shortfall.
Structure of India’s power sector
Under the Electricity Act, the Distribution Company (Discom) is responsible to provide electricity reliably round-the-clock to all consumers to meet full demand. These Discoms work under the oversight of the State Electricity Regulatory Commissions.
The Discom enters into contracts with a number of generating companies in order to ensure adequate supply.
How did the crisis take place?
Supply Side
A number of coal– and gas-based power plants were stranded in nature. They could be called as non-performing assets.
India has been witnessing slower and lesser energy-intensive economic growth. This led to lower electricity demand growth than expected.
The Discoms have failed to update the demand growth projections and scenarios over the medium term. Thus, they failed to enter into adequate supply arrangements in a robust manner with reserve margins.
Probably, the State Regulatory Commissions have failed to scrutinise them transparently.
Demand Side
The nature of electricity demand is undergoing a qualitative transformation with rising daily and seasonal peaks, and spikes on very hot or cold days. This has been due to higher incomes and the consequent increase in the use of air-conditioners and other electrical appliances.
India has been undergoing robust economic recovery after two waves of COVID-19. Further, India faced an unexpected heat wave.
Way Forward
The consumer, the political class and the Regulatory Commissions have the collective responsibility for reliable supply.
Tariff Related
There should be meaningful political discussion on the relative benefits from subsidies. In fact, the subsidies should be restricted to a specified level as provided in the Act.
The Regulatory Commissions should not act from a political point of view. It should determine cost-reflective tariffs.
Demand Side
There should be peak demand moderation through flattening of the demand curve. This can be done through a change in consumer behaviour with smart meters. In addition, there should be a large differential in peak and off-peak rates. Thus, consumers will resort to using cheap electricity during off-peak hours for geysers and washing machines.
Supply Side
The Coal India needs to create capacities to rapidly ramp up production; and should increase coal production.
The Railways should ramp up its capabilities to carry larger quantities of coal when demand surges.
There is idle but expensive generating capacity available in India. The idle gas-based power plants can run on imported LNG, and the idle thermal plants can run on imported coal.
The consumers who are willing to pay more could be kept free of power cuts with purchase and supply of more expensive electricity generated from imported coal and gas. This would be shown as a peak demand surcharge in the bills.
The Regulatory Commissions should allow the Discoms to go in for bids for power storage (also, large-scale grid storage). This can help India achieve the goals of creating 500 GW of non-fossil fuel capacity including 450 GW of renewables by 2030.
The Discoms should ensure that they do not delay payment to the power generation companies.
It is also time to move towards separate peaking power procurement contracts in addition to the present system of long-term thermal power contracts.
There is a need to look whether Coal India or the Indian Railways have defaulted or power generators have defaulted contractually in supplying power to Discoms. The contractual terms may be tightened with enforceable financial penalties.
India needs to transition to demand-based time of day rates of electricity for generators as well as consumers.
Source: The post is based on an article “Powering up after the power crisis shock” published in the “The Hindu” on 10th May 2022.
