The problems plaguing thermal power generators

News: On June 10, India’s power demand touched a record high of 211 MW even as the coal shortage continued with coal stocks available only for eight days.

Consequently, the Ministry of Power directed the power-generating companies or ‘gencos’ to use imported coal for 10% of their requirement, failing which their domestic supplies would be cut.

India is the second-largest producer of coal, with reserves that could last up to 100 years. Despite that, year after year, the shortage of coal supplies continues to be an issue.

How did India get to this stage?

As seen in chart 1, the domestic production of coal stagnated between FY18 and FY21, but revived in FY22.

The power demand too surged owing to economic recovery and hotter weather conditions.

Pressure on domestic sources: Until FY20, domestic sources contributed to about 90% of the power sector’s coal receipts; the remaining was filled by imports. But by FY22, the reliance on imports decreased to 3.8% which built pressure on domestic supplies.

High price of coal in the international market: This dip in imports can be attributed to the skyrocketing prices of coal in the international markets. The price of imported coal is nearly 5-6 times higher than domestic supply.

– Hence, States are wary of using imported coal as it would raise the cost of power substantially.

The use of imported coal will also push up the price of power supply to the power distribution companies or ‘Discoms,’ often dubbed as the weakest link in the power sector chain.

What are other perennial bottlenecks behind India’s power crisis?

Discoms owe long-standing dues to the tune of ₹1.16 lakh crore to the gencos. Delays in payments by discoms create a working capital crunch for generating companies which in turn inhibits them from procuring an adequate quantity of coal.

Further, they are unable to pay generators on time. Discoms in Tamil Nadu, Rajasthan and Uttar Pradesh are the most financially stressed.

Why are discoms not able to the gencos on time?

Discoms are bleeding because the revenue they generate is much lower than their costs.

This is evident from the gap between the average cost of supply and average revenue realised (see chart 6). Tamil Nadu, Jammu and Kashmir, and Rajasthan have the widest gap between revenues and expenses of discoms. Apart from providing power at cheaper rates, some State governments do not revise tariffs periodically. Further, the delay in getting compensation from the government also compounds the woes of cash-strapped discoms.

Source: This post is based on the article “The problems plaguing thermal power generators” published in The Hindu on 24th June 22.