The relation between coal crisis and Ukraine war, writes Ajit Ranade

The bulk of India’s electricity comes from burning coal. This coal has to go from the minefields to the electricity generating plants. It travels by rail and road, mostly the former. The total annual demand for coal in India is close to 1 billion tonnes and is expected to rise to 1.5 billion by 2030. The domestic production by the government-owned Coal India Limited was 622 million tonnes during the last fiscal year 2021-22. This was a record. In fact, the actual coal dispatched from CIL mines was even higher at 662 million tonnes, due to prior inventory. To transport this huge amount of coal, and also imported coal from the ports to the generating plants, the railways' haulage also reached new records. Over and above CIL production, there is private mining production of coal too, thanks to liberalisation in mining policy, and also captive mining which utilises coal for uses like producing steel and aluminum. Even then the country has to depend on more than 200 million tonnes of coal imports from places like Indonesia, Australia, and South Africa. Despite such efforts, there is a shortage of coal which leads to an energy shortage.

This is happening even after India’s great push to install solar electricity. The installed capacity for solar electricity is ahead of target, but the actual electricity produced is low, since the sun does not shine at night (i.e. fifty percent of the time) and there is no way to store electricity produced during the day to be used at night. This requires a massive increase in battery storage, which is as of now prohibitively expensive. The other promise is through hydrogen-based fuel cells which can store energy produced from the sun. This is a great technological promise that big companies like Reliance are betting on with large investments. Until that happens, India has to depend on coal-based electricity and hence face shortages.

The energy shortage even back in October was about 1.2 billion units. This shortage is mostly due to the unavailability of coal at the electricity plant, either because the rail rakes were not available, or enough coal was not mined. India’s total installed electricity capacity including all sources is 400 gigawatt, of which coal alone accounts for 51 per cent i.e. more than half. A coal plant can run all 24 hours of the day, unlike solar or wind power plants. India produced nearly 1500 billion units (BU) of electricity during 2021-22. But there was a shortage of around 1.2 BU recorded during October 2021 as demand peaked due to winter.

The shortage has become more acute now. During the last week of April 2022, the energy shortage is more than 2 BU. This is due to an unprecedented heatwave across much of India, causing temperatures to soar above 43 degrees. The daily peak demand exceeds 200 GW daily. This high demand will persist for another two or three months since summer will last till July, at least in North and West India. The coal shortage pinch is such that the stocks kept at generating plants are reaching dangerously low levels. In both domestic and imported coal-based plants, stocks are as low as 7 days. Thus, to ensure that coal reaches these plants in a timely fashion, the railways are taking unprecedented measures. The railways have cancelled passenger trains to make way for coal rakes to travel from mining areas to power plants. The cancellations include 753 trips across 21 trains till the end of May. More such measures might be necessary if the heatwave does not relent. The cumulative shortage of power if it exceeds 2.5 billion units, will call for power cuts. In some parts of India long hours of a power outage cannot be ruled out. Of course, typically the metros and large cities will be spared the worst of the power cuts, and smaller towns and villages will bear the brunt. The coal crisis also means that non-power sector users, like aluminum and steel producers, textile and paper industry, sponge iron, and some fertiliser units will be denied coal, which may affect their production. This is a complex optimisation exercise involving coal movement, railway train, rake planning, and power outage planning.

The situation has been aggravated by the Ukraine conflict. As gas from Russia becomes unavailable or boycotted, the Europeans and Americans will burn more coal. The price of international coal from Australia is usually 100 dollars per tonne, but thanks to the Ukraine war, coal prices spiked up to a shocking 440 dollars, as there were supply worries. Of course, the price of natural gas, the other fuel used for home heating in Europe, has gone through the roof. So, coal-based energy at these high prices is still cheaper. The global demand for coal had risen 9 per cent during 2021, to an all-time high of nearly 8 billion tonnes. It will rise by another 2 per cent in 2022, even as there are fears of a recession and stagflation. The price of coal in India has shot up too, especially manifest in the e-auctions conducted by the exchanges. So, we have the twin scourge of power outages and a surge in prices. The power exchanges recorded prices of 12 rupees per unit of electricity, which normally is around 3 or 4.

One consequence of excessive dependence on coal is the implication for global warming and the net-zero targets announced for emissions, most recently in the Glasgow Summit. As we wait for renewables like solar power and hydrogen to become economical and available in abundance, the world may have to explore an increase in nuclear energy. Countries like France and Japan are largely dependent on nuclear power, although, after the Fukushima accident, there was a temporary stoppage. That freeze on nuclear power expansion needs to be re-examined, and India too must keep the nuclear expansion option open.

As if the commodity inflation due to oil and other materials wasn’t bad enough, we now have to contemplate getting singed by the shortage of coal and expensive electricity. Looks like it’s going to be a hot, sweaty summer.

(Dr. Ajit Ranade is a noted economist)