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Context: With a coal-supply demand gap, and international coal prices rising, cash-strapped thermal power generators are left with critical stocks.

Details:

• 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.
• In the last two months, as temperatures soared and the economy recovered, the power demand breached the 200 MW level on several occasions.
• But the coal stock position at power plants remained worrisome.
• Consequently, the Ministry of Power sprang into action. To bridge the gap between shortage in domestic supply and increasing demand, power-generating companies or ‘gencos’ were directed to use imported coal for 10% of their requirement, failing which their domestic supplies would be cut.

How did India get here?

• 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.
• 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.
• 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 dwindled to 3.8% which built pressure on domestic supplies.
• The coal imported by power plants declined to 27 MT in FY22 from 66.06 MT in FY17. Coal imported for blending purposes by power plants that run on indigenous coal declined to 8 MT in the last financial year, from 19.7 MT in FY17. Past data show that importing coal for blending has always seen few takers.
• A bulk of imports was made by power plants designed for imported coal. Notably, their share of imports too saw a decline of 60% in FY22 since FY17. Out of 15 such import-based power plants in India, five had little or no coal stock as of June 15.
• 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 the domestic supply.
• It is in this scenario that the Power Ministry asked the gencos to import coal.
• However, states are wary of using imported coal as it would raise the cost of power substantially. The shortfall in domestic supplies and the rising cost of imports have put power plants in a precarious situation.
• About 79 of the 150 plants that depend on domestic coal had critical stocks (<25% of the required stock) as of June 15. Eight import-based coal plants were also at critical levels.

Perennial bottlenecks:

• 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.
• 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.
• According to the 2019-20 report by the Power Finance Corporation, discoms had accumulated losses up to ₹5.07 lakh crore and were therefore unable to pay generators on time. Discoms in Tamil Nadu, Rajasthan and Uttar Pradesh are the most financially stressed.
• 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
• 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.

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