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2022-05-02

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Relevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

A coal crunch amid heat waves may be its proximate cause but India’s power crisis is best pinned on a disconnect between installed capacity and availability that we must sort out

India’s power scarcity bears a reflection of the fabled Soviet glass factory. In spite of surplus capacity and record output, as this pre-1990s tale goes, Russian homes were left with wooden planks for window panes. With a central plan in place of price pivots, missing in action was a market for supply to freely meet demand. At last count, India had an installed capacity to generate almost 400 gigawatts of electricity, about 40% of it cleanly, but a surge in peak demand to nearly 205 gigawatts amid the swelter of April sent many of us reeling under outages. After the government opened up the sector’s grid in 2003 to be fed by rival private generators, we had seen a spree of investment that left us with some bust-ups and bad debts, but also set supply on course to catch up with demand. Power cuts, however, have persisted because the last link has stayed flickery. If supply is still so erratic today, the blame lies more with our failure to forge an end-to-end market than just a coal crunch. Little else can explain why gadgets go on the blink even though we can whirr out far more power than needed even on high-sizzle days.

No doubt, the current crisis is about a coal shortage. This source of energy drives turbines that add up to over half our total capacity, but stocks at power plants fell to barely nine days’ worth last week, well below the 24-day level they’re supposed to keep. This just-in-time model has seen trip-ups galore and was pushed upon them by two big factors. First, a spring-back in demand from pre-covid peaks that traced a revival in the Indian economy, even as extra power was guzzled by an early AC season amid record temperatures. Second, the Ukraine war made prices of coal spike, as heat extracted from it can plug global energy gaps left by war-led clamps on Russian oil and gas. As Indian coal importers looked to domestic sources, local stuff fell short. From mines to furnaces has long been a long-winded process marked by the logistical lethargy typical of state-run links—like railway carriage—in any supply chain. But, if the system’s response to all the flux of 2022 was too lax, behind it also lay a heap of coal bills unpaid by power utilities in major states. Most distributors are state-run entities that are strapped for cash and stretched out of shape by a statist status quo at the usage end of the market, where theft and freebies are rife and subsidy-transfer delays from state coffers are routine. The Centre’s recent fiscal incentive for states to fix utilities, plug leaks and charge properly (with ‘smartmeters’) was the most recent rescue effort after its Uday plan of 2015 proved a damp squib, but cash flows remain too sluggish to act as market signals. As the mercury soars ever higher, the wait for demand to get a supply response could stretch on endlessly. Such is the disconnect.

Statism stands in the way. Yet, the need for power subsidies as a policy tool cannot justify market control any longer, since cash transfers can serve that end. While interests vested in political pelf may erect hurdles, we need to go in for end-to-end reforms that could link demand and supply efficiently. Household bills may or may not go up. Given a free rein, private rivalry for customers may limit the impact of true costs slapped on as energy gets dearer globally to cap climate change, while overbilled commercial users could get relief. Absurdities like factories billed during lockdown would cease. Let’s free this vital sector fully from state clutches. Else, Digital India might stay prone to interruption and silicon chips—if not silica—to wastage.

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