Reforms needed to deal with the power crisis

India is currently reeling from an unprecedented energy crisis triggered by massive disruptions in the supply of coal to power plants, especially in the north and east of the country. The situation threatens to offset the green shoots of economic recovery exhibited in recent times.

Factors on both the supply and demand side have contributed to the current crisis. First, coal-fired power plants have failed to maintain minimum coal reserves equivalent to 15 to 30 days of consumable coal. They continued to tap into existing coal reserves until recently without replenishing themselves, partly because of reduced supply (due to non-payment of overdue contributions by some states) and partly due to lower imports (due to high international coal prices).

Second, which appears to be a consequence of global climate change, erratic rainfall in India has resulted in the flooding of coal pits during the dry season this year, significantly disrupting the supply of coal.

Third, India’s post-pandemic economic recovery has increased demand for resources, especially electricity. From August to September 2021, energy consumption jumped by more than 10% compared to the same period in 2019 (the previous “normal” year).

Fourth, on a more fundamental level, the poor performance of coal-fired power plants has precipitated the current crisis. A recent study by the Energy, Environment and Water Council (CEEW) found that the net thermal efficiency of coal-fired power plants in India is only 29.7%, which is significantly below the weighted world average of 37%.

The current crisis underscores the need to assess the acute and chronic challenges plaguing the electricity sector and provides an opportunity to implement critical and forward-looking reforms. In this regard, the following points deserve attention.

First, urgent attention is needed to close the massive deficit in energy production from non-renewable sources. As a signatory to the Paris Agreement of the UNFCCC and in accordance with the Nationally Determined Contribution (NDC), India intends to increase its total cumulative installed electricity capacity from electricity sources. 40% non-fossil energy by 2030.

The calendar-based target for various renewable sources suggests that the deficit is particularly large for solar power plants.

Solar energy

The latest data from the Ministry of New and Renewable Energy reveals that compared to the target of 60 GW of ground-based solar power plants and 40 GW of rooftop solar power plants by 2022, only around 38.81 GW (around 65 % of target) and 5.5 GW (about 14 percent of target) have been installed respectively so far.

The latest report from the International Renewable Energy Agency suggests that the 10-year decline in the weighted average price of installing solar technology in India is among the highest in the world (88 percent). Still, there is a big gap in the target and actual installation of solar power plants, especially solar roofs.

This calls for more concerted efforts on the part of the government to expand funding options; facilitate the one-stop customs clearance process; and sensitize consumers, primarily rural households, to the benefits of solar for increasing capacity through larger rooftop solar installations.

Second, based on the cheapest first principle (allocation of orders on merit), the current electricity supply policy favors inefficient old power plants, as they get coal at lower tariffs due to old price contracts.

As the CEEW study reveals, adopting an efficiency-based allocation policy instead of just the merit-based allocation policy can improve thermal efficiency by 6% over baseline. , which implies an overall annual reduction in coal consumption of 42 MT for the same quantity of electricity produced. Policymakers should seriously consider the suggestion, as such a change will align our policies with global best practices.

Third, as a recent study by the International Energy Agency shows, with a slow but gradual increase in the share of renewables in the electricity supply portfolio, the time lag between supply and demand for electricity has become more frequent.

In this context, there is an urgent need to design policies related to demand management by introducing hourly tariffs for all sectors so that the demand schedule can be dynamically realigned with peak supply.

Supply management can be done by introducing storage systems to store excess electricity for later use as demand increases. The storage system may be battery-based for behind-the-meter storage at the consumer level; and a combination of storage (including battery, pumped storage, etc.) at the network level, leading to increased system flexibility.

Fourth, India should take the lead in developing a regional electricity market – a position also consistently defended by the Central Electricity Regulatory Commission (CERC).

Cross-border trade

ESCAP studies have shown that cross-border electricity trade in South Asia will lead to lower electricity costs through more efficient use of sub-regional energy resources and price arbitrage between countries. ; reduction of operating costs of cross-border integrated systems; lead to efficiency gains in inputs from a larger scale of production; lower levels of production capacity required due to centralized reserve management; and smooth out variations, both in generation and in load profiles.

The integration of the electricity market must ensure the double advantage of reducing the share of coal-based electricity needs and of responding to regional variations in supply and demand, taking advantage of the differences. temporal and spatial.

As a developing country, India will continue to depend on fossil fuels to meet the growing demands of the economy.

However, the political emphasis on a greater transition to renewable energy, efficiency improvement measures and the promotion of regional cooperation can go a long way in reducing dependence on conventional non-renewable resources, without affecting the demand for energy. the country’s electricity and consumer welfare.

Anand is Executive MBA Student and Nandy is Assistant Professor, IIM Ranchi. Views are personal


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