An unexpected power crisis may arise in India in the coming times. India has 135 coal-fired power plants, of which more than half are facing coal shortages due to the severe depletion of coal reserves.
In India, more than 70 percent of electricity is produced from coal, so this is a matter of concern as it may derail the economy which is back on track after the pandemic.
Why is this happening?
This crisis has been brewing for several months. After the second wave of the Covid epidemic, India's economy has boomed and the electricity demand has also increased suddenly.
In the last two months, the consumption of electricity has increased by 17 percent as compared to 2019. Meanwhile, worldwide coal prices have risen by 40 percent while India's coal imports are at their lowest level in two years.
Although India has the fourth-largest coal reserves in the world, due to consumption, India is second in the world in importing coal.
Power plants which usually run on imported coal are now dependent on coal being produced in the country.
This has put the already deficient coal supply under even more pressure.
What could be the effect of this?
Experts believe that meeting the needs by importing more coal is not a good option for India at this time.
"We have seen coal shortages before, but the unprecedented thing this time is that coal is much more expensive," says Nomura's vice president and Indian economist Orodeep Nandi.
"If I'm a company and I'm buying coal at an expensive price, I'll increase my prices, isn't it? Businesses eventually pass on the cost to the customer, so it can lead to inflation - it can be direct as well." Maybe and indirectly also."
If this crisis continues like this, then the consumers may be hit by the increase in electricity prices. At present, retail inflation is already high in India because everything from oil to essentials has become expensive.
Vivek Jain, director of India Ratings Research, says that the situation is very uncertain.
India has in recent years tried to reduce its dependence on coal to meet its commitments to the environment.
Coal production in India has also decreased.
India's Energy Minister RK Singh has said in an interview to the newspaper Indian Express that the current situation is risky and India should be prepared for the next five to six months.
A senior government official, who did not wish to be named, told the BBC that the circumstances were worrying.
Zohra Chatterjee, former head of Coal India Limited, a state-owned enterprise that produces 80 percent of India's coal, warns that if the situation continues like this, Asia's third-largest economy will struggle to get back on track.
Zohra says, "Everything runs on electricity, so the entire production sector - cement, steel, construction, all get affected by the shortage of coal."
She describes the current situation as a warning to India and says that the time has come for India to reduce its dependence on coal and move aggressively on renewable energy strategy.
What can the government do?
In recent years, the question of how India can meet the needs of its population of about 140 crores and how to reduce its dependence on heavily polluting coal, has been a challenge for the governments of India.
Dr. Nandi says that this problem is so big that no short-term solution can be found for it.
Nandi says, "The most important thing is that it has a huge scope. A large part of our electricity comes from thermal power (coal). I don't think we have reached such a stage now that there is no effective alternative to thermal power. I agree that this is a warning to India and India should be careful. But I do not think that our dependence on coal in our energy needs will be eliminated any time soon."
Experts believe that India will have to follow a mixed policy of adopting coal and clean energy sources for a possible long-term solution.
"It is not possible to completely shift to renewable energy and relying on 100% renewable energy without any solid backup would not be the right strategy either," says Jain.
"You only make complete changes when you have backups available because you are adding mass production to environmental and weather hazards," says Jain.
She believes that there is a need for better coordination between the country's largest coal supplier Coal India and other stakeholders. Smooth delivery to the last level and accountability of power companies should be ensured.
Chatterjee says, “Power producers should also keep coal reserves, they should have a certain limit of storage at all times. But we have seen that this has not happened because arranging such a large amount of coal would have financial challenges. Huh."
What can happen next?
It is not clear how long the current situation will last but Nandi is hopeful that things will get better.
"With the monsoon coming to an end and winters approaching, power consumption is generally reduced and the gap between power requirement and supply may narrow to some extent," he says.
Vivek Jain says, "Such a situation is in the world, not limited to India only. If gas prices fall today, people will start using more gas. This is a changing situation."
At present, the Government of India has said that it is working with Coal India to increase production and do more mining so that the gap between supply and consumption can be reduced.
The government also hopes to get coal from the hostage mines. These are the mines that are under the control of companies and only those companies use the coal produced from them. These mines are not allowed to sell coal under the terms of the agreement with the government.
Experts agree that India can somehow come out of the current crisis with short-term measures, but to meet the country's growing energy needs, India will have to work towards investing in long-term options.
Economies around the world have suffered the biggest decline in recent decades and India is also trying to get its economy back on track. In such a situation, India would not like that there should be obstacles in its way.
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