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Nothing makes you appreciate air-conditioning like high summer in India. In Delhi, temperatures are running over 100 degrees for much of the day, with two full months still to go before the cooling monsoon rains arrive. Unfortunately, just as everyone decided to crank up their ACs or at least their ceiling fans, electricity supply collapsed under the strain in large parts of the country.
This is not, sadly, a rare occurrence. It happens almost every summer and on other occasions when power demand spikes. There’s no clearer evidence that India’s electricity sector, dominated by coal-guzzling power plants and state-run utilities, simply isn’t up to the job. And the problem is only going to get worse: India has rapidly electrified in recent years and peak power demand has been growing between 8% and 10% a year.
The reasons for these successive power crises are almost always the same. Thermal power plants produce three-fourths of India’s electricity. But they can never seem to get their hands on enough coal.
Sometimes the generation companies can’t pay for coal shipments because they, in turn, have not been paid by India’s improvident electricity distribution companies.
Sometimes Coal India Ltd, the state-run behemoth that produces 80% of India’s coal supply, doesn’t produce as much as promised, whether because its miners are on strike or for other reasons. Sometimes the coal has been dug out of the ground but left at the pithead because Indian Railways can’t organise enough wagons or
locomotives. Sometimes protesters disrupt the long national coal supply chain.
Sometimes the imported coal some plants prefer isn’t available or shipments are late. Whatever the reason, the result is that India, famously dependent on coal, has coal-fired plants that run at between 50% and 70% capacity even at times of peak demand. Combined with the low tariffs set by long-term power purchase agreements, as well as chronically delayed payments, this means the entire business is unremunerative.
Unsurprisingly, nobody wants to invest in the sector.
Ordinary Indians are paying the price. Last month, utilities in the industrial state of Gujarat were forced to buy electricity from the spot market at three or four times the usual price, even as thermal power plants locally were operating at only 45% capacity.
It has long been conventional wisdom in India that the country must continue to depend on coal because — unlike, say, crude oil — we are sitting on huge reserves. Understandably, we don’t want to be entirely dependent upon imported energy. Energy security means macroeconomic stability.
—Bloomberg