Context

The recent power crisis due to the coal shortage in India underscores the need for measures to avoid a repeat of episodes in the future.

Factors contributing to power crisis

• Spike in power demand: With the sudden early onset of summer in 2022, power demand spiked, riding on the back of the post-Covid economic recovery.
• Increase in price due to Ukraine crisis: The matter was further exacerbated by the Ukraine conflict, which led to a sharp increase in the price of imported coal.
• Consequently, power stations designed on imported coal stopped importing because it was no longer economical for them to generate, given their contract price with the distribution companies.
• Availability of railway rakes: It’s not that domestic coal was not available since enough stock had been built in the mines.
• The issue was of availability of railway rakes for transportation.

What were the measures taken by the government ?

• 1] Import of coal to 10 per cent: First, all generators have been asked to import coal to the extent of 10 per cent (as against 4 per cent earlier) and that half of this should be physically available by the end of June.
• CIL as aggregator: Coal India will function as the aggregator on behalf of the generators.
• CIL functioning as the aggregator is a better idea and it may be able to import at a cheaper cost by accumulating demand as well as standardising the coal grade to be procured.
• Moreover, it would be easier for regulators to calculate the revised energy charge since the price at which coal was imported would be well-documented.
• 2] Section 11 of the Electricity Act 2003 (Act) invoked: Under this section, the government directed imported coal-based plants to run at full capacity with the assurance that their enhanced cost of operation would be compensated.
• 3] Tolling: The government invoked the concept of tolling, which allowed states to transfer their allotted coal to private generators located near the mines instead of transporting it to far away state generators.
• This move would ease the burden on the availability of railway rakes.
• 4] Seeking the consent of beneficiaries for hike: the government issued policy directions to the Central Electricity Regulatory Commission (CERC) overriding CERC’s regulations that made it mandatory to seek the consent of beneficiaries if the tariff went up by more than 30 per cent, if some alternate fuel is used.
• 5]  Committee to rework the energy charge: A committee of officials was set up to rework the energy charge for imported coal-based generators.
• 6] Additional working capital: The government is cognisant of the fact that there is a need for additional working capital and has advised REC/PFC as well as commercial banks to arrange for this.

Issues with the measures

• Use of Section 11: The government invoked Section 11 to give  direction to private generators to import coal at a higher cost.
• Section 11(1) allows the government to give direction to a generation company to operate and maintain a generating station in extraordinary circumstances.
• Section 11(2) of the Act mentions that the adverse financial impact on generating compacy due to directions referred to in sub-section (1) would be offset by the regulator.
• Going by Section 11(2), the government should have left the job of working out the energy charge to the regulator instead of setting up a committee of officials to do so though, of course, the CERC was represented in the committee.
• 2] No transparency: The committee has already worked out the revised energy costs for six of the plants but there is no transparency regarding the coal cost assumed, its calorific value, transportation cost, etc.
• 3] Additional rakes: We have to bear in mind that the coal problem arose because of the non-availability of rakes.
• With 38 MT of coal to be imported by October this year, and half of that by end of June, the need for rakes will not only go up but would be front-loaded.
• We need the requisite number of rakes otherwise, we are back to where we began.

Conclusion

While the government is taking steps to increase coal imports and addressing the other issues, it must ensure that domestic production does not dip during monsoon season.

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