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Cold comfort: The energy crisis gripping India and the world, explained

Why is India facing a major coal crunch?

coal-power-plant-climate-change-global-warming-reuters Steam rises at sunrise from the coal-fired Lethabo Power Station, owned by ESKOM near Sasolburg, South Africa, March 2, 2016 | Reuters

As with most other things happening in our interconnected world, the origins of the present energy crisis that India is staring at can also be pinned on China. Even if it is too simplistic an origin story.

A series of unfortunate incidents has led to a crippling shortage of electricity in some of the world’s biggest economies, India and China included. This included incessant rains which delayed the movement of coal from mines in Central India to power plants elsewhere, to even an accident at a prominent mine in China’s Shaanxi province.

But first, the good news. The supply of coal to India’s power plants this weekend stands at 1.95 million tonnes, against consumption of 1.91 million tonnes. Union Power Secretary Alok Kumar also claimed that power outage due to lack of coal was less than one per cent.

That would also be too simplistic an explanation.

Worrying symptoms

At least four Indian states where a good chunk of industries are concentrated, like Maharashtra, Punjab and Haryana, have already resorted to load-shedding. Andhra Pradesh Chief Minister Jagan Reddy has sent SOS to the Centre on the precarious situation due to lack of availability of coal at power-generating stations. Delhi Chief Minister Arvind Kejriwal wrote to Prime Minister Narendra Modi, pointing out how it was “essential to maintain uninterrupted power in Delhi, which is catering to strategic and important institutions of national importance”. 

Coal prices have hit the roof, with some states forced to buy electricity from exchanges at sky-high prices, despite having purchase agreements with power distributing companies who are just not able to supply enough as per their need. Coal power plants in the country are functioning on an average four days of coal stock, though the required level is a minimum of 15 days.

Pretty ironic for a country with some of the highest coal reserves in the world, with one study estimating that India has enough coal in its bowels to supply power for 300 years!

“Certainly there is a link to global shortages, which, in turn, resulted in a steep jump in imported coal prices,” said Ananth Aravamudan, sector lead (climate action), Villgro Innovations Foundation.

While keeping up a brave face, Finance Minister Nirmala Sitharaman, who is on a tour of the US, called reports of a coal shortage in the country “absolutely baseless”. The government has called on coal makers to produce an additional one crore tonne this year, besides asking power companies to import coal. The prime minister’s office itself reviewed the situation a few days ago, with power and coal ministers being asked to do real-time monitoring.

The import bullet

Importing coal could set off more issues than it solves. One is, of course, the obvious question as to why a nation with so much coal reserve is forced to import from elsewhere—in a juicy twist of fate, this was the allegation that BJP ministers like Prahlad Joshi had kept throwing at previous Congress governments while auctioning off many coal blocks to private players over the last few months.

The other problem is the political backlash. Opposition leaders have already gone to town screaming conspiracy. Gaurav Pandhi, social media national coordinator and spokesperson of Congress tweeted, “It cannot be a coincidence that just when Adani has to start exporting coal from mines in Australia, India is witnessing shortage.”

Not that coal is easy for the taking from abroad. International prices have shot up to around Rs18,000 per tonne (twice what it was in May). This is way higher than the price quoted by Coal India. 

In fact, many parts of the world are themselves staring at a serious energy crisis, leading many observers to wonder whether it will be a “winter of discontent” in cold countries in Europe. “Record coal and gas prices, as well as rolling blackouts, are prompting the power sector and energy-intensive industries to turn to oil and keep the lights on and operations humming,” the International Energy Agency (IEA) said in its report for October. But that means a domino effect on oil prices, which have been spiralling up in recent weeks. Oil is hovering around 85 dollars a barrel while aviation fuel prices, for example, went up nine per cent in just the last one month and 80 per cent over the past year.

Cause and effect

So, why is all this happening now? In one word, COVID-19. Or more specifically, a world that is itching to move past the pandemic. 

Business recovery in countries like India and China have been faster and stronger than expected, to the levels that the economy’s network of raw materials, transport and supply system was left unprepared. The decline in power consumption in 2020 left many logistics—coal production, transportation and supply for example, lagging behind as they dealt with a drop in demand. But a faster-than-expected recovery left the entire supply chain gasping for breath.

Secondly, the concentration of crucial businesses in certain hubs—the pre-COVID global way of conducting trade and manufacturing—was pummelled by the pandemic and its aftermath. This is what has seen raw materials like semiconductors suddenly in short supply all across the world.

The world is also voracious for power. Aspiring classes across burgeoning economies have been lapping up more and more electronic gadgets in our post-tech world. However, this increase has not been matched by ramping of supplies—aggravating matters has been the push in favour of renewable ‘clean’ energy like solar power and wind power rather than polluting coal. By a perverse twist of fate, this push has had unintended consequences. 

China’s chagrin

In China, industries consume nearly 60 per cent of the electricity that is produced. And they have so far been offered at attractive prices that actually get cheaper the more you consume. Cheap electricity has been one of the most crucial tools powering the Chinese economic powerhouse in the last decades, and it is no surprise that the authorities encouraged higher power consumption at even lower rates.

The problem? There just doesn’t seem to be enough of it being produced. Two-thirds of China’s power is thermal, fuelled by coal. And its price has been going up steadily over the last few years, ever since many illegal coal mines were shut down by the communist regime. While the prices fell when COVID-19 hit and consumption plummeted, they have again been on a steady trajectory up ever since the economy steadily re-opened.

While the going was good for a while, problems started cropping up ironically when China tried to right a wrong. Lambasted by Western economies for long about its dependence on polluting coal as a source of energy, Beijing has been doubling down to reduce its greenhouse emissions and shift to renewable sources. That has meant shutting down illegal coal mines, cutting imports (a diplomatic tiff with coal producer Australia was a significant contributor), and restricting industries like steel manufacturing where raw materials which emit greenhouse gases are used. 

The result? When demand skyrocketed as a post-pandemic boom saw construction, factories and even personal electricity consumption spiralling, the nation was left staggering with an energy shortage.

In the same boat

The UK is also facing a similar dilemma. Brexit saw the isles facing a dire shortage of drivers for fuel lorries, leading to a shortfall. Ahead in its targets for clean energy, more than one-fourth of the UK now runs on wind energy. That put the Brits in a pickle as 2021’s summer was quite ‘windless’, leading to less production of electricity.

Forecasts of an extremely cold winter knocking at the gates couldn’t have come at a worse time for colder countries in Europe and Asia—Russia, which provides life-saving gas and oil that keeps most of them warm, is developing cold feet, directly leading to the increase in their prices. 

The domino effect

“The coal shortage is a concern, but steps are being taken to ease the pressure. Hope things get better in the coming months,” said T.V. Narendran, managing director of Tata Steel. And he should know—coking coal is a key ingredient in steelmaking, as well as in the manufacture of cement, and in chemicals. The government’s recent order to coal companies to divert coal supplies from industries to power plants for producing electricity could have a direct ramification on the economic recovery. 

A Hobson’s choice

It has been ironic that coal, oil and all the usual greenhouse gas emission suspects have struck back with a vengeance just when the move towards clean energy was gaining traction. And there is a whiff of an advantage for India, present domestic supply crunch apart, as 70 per cent of our energy is still made from non-renewables, primarily coal. So, if India can rectify its present domestic supply crunch situation soon, its coal reserves could well fetch it some nice market considering the present international scenario. A tall order, though.

Lessons to be learned

But for the long run, the present crisis does have some hard lessons for the country. According to Aravamudan, "The main issue is that we are dependent on large, centralised power generation. The only way our power sector [can] absorb shocks better [is] if large power plants are augmented by decentralised generation sources at village level. This can be a template for better resilience to future power crises."

Having said that, and despite all that has happened, no one is still saying that there should be any backtracking in India’s slow shift to renewable energy. In fact, if all the installed renewable energy plants were producing electricity to capacity, and states were buying from them, the present crisis would have been much milder. But, the reality is that despite more than one-fourth of India’s installed capacity being in wind and solar, production is less than 10 per cent of the total, as per data of the Central Electricity Authority. 

Right now, Power Minister R.K. Singh’s comments to a newspaper that the energy situation is ‘touch and go’ and that he is bracing for a “trying next five-to-six months” would be but cold comfort. In more ways than one.

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