Heatwaves sweep across India and March 2022 is the hottest March since 1901. High temperatures continued into April, adding to concerns from utilities trying to respond to the rising demand for electricity.
India saw a peak demand of 200 gigawatts (GW) in March and April, up 8% from a year earlier. On April 12, peak demand was 8,500 megawatts (MW) and on April 28, 10,778 MW, while peak demand hit a record 204 GW.
India has a total installed capacity of 400 GW (March 2022), almost double peak demand. However, about 12% of the capacity mix is seasonal hydro and 28% is renewable power, which is intermittent and may not be available during peak periods unless augmented with storage capacity.
About 51% (204 GW) is firm coal-based capacity. However, coal-fired power plants operate at low capacity utilization with average plant load factors (PLFs) of 68%. The shortage of coal is one of the main reasons for the low PLF.
There is a need for greater availability of loading rakes for the transport of coal. The Department of Energy has urged power-generating companies to purchase their own rakes to deal with logistical constraints on coal supply.
Additionally, as of April 1, coal stockpiles at power plants had an average reserve of just nine days, the lowest level since 2014. Power plants must hold stocks for at least two weeks. At the beginning of March, there were 80 factories with critical stocks of coal. On April 12 (one of the days with the greatest shortage) it reached 97 and on April 28 it reached 108.
Record global coal prices mean it is expensive to import to fill the gap in domestic demand for coal. Asia’s benchmark Newcastle coal futures are trading at around $325 a tonne compared with $90 a tonne a year ago, helped by rising demand amid alternatives to resource scarcity. energy and sanctions on Russian coal.
Rising electricity prices will add to the financial difficulties of indebted power companies, which owe Rs 1.1 billion to power producers, especially as global coal prices trade at a high premium compared to average 2021 levels due to Russia and Ukraine. War.
Commercial and industrial consumers who rely on open access will bear the brunt of having to source expensive electricity from the open market, with average electricity exchange prices in the range of Rs 9-12/kWh and peak prices regularly reaching Rs 12/kWh. kWh in the last days. In March, prices reached Rs 15-18/kWh, and in early April the regulator lowered the maximum price to Rs 12/kWh. Short-term market prices have soared due to a shortage of domestic coal and high prices for imported coal.
Power outages will also slow the growth of industrial activity. Coal India is reducing coal supplies to the non-energy sector. This means industries like aluminum and steel could experience power outages.
The government’s immediate response is to try to avoid the crisis by increasing imports and requiring captive producers to produce at full capacity. Several states have urged idled thermal plants to resume operations and are willing to pay higher prices for coal and gas power to avert a crisis. The Department of Energy is asking utilities to increase imports of coal for blending to 36 million tons.
The energy crisis has shown that the cost of generating electricity from coal is high and inflationary. With energy demand likely to continue to grow, India needs to invest in sustainable energy options. The government should speed up the deployment of locally produced deflationary renewable energy.
India has set huge renewable energy targets for 2030 and net-zero by 2070. To meet these targets and integrate large amounts of renewable energy into the grid, India must now push for more capacity such as pumped hydro and batteries. Deposit.
The government should provide incentives by investing in research and development on green hydrogen and energy storage, and introducing a production-linked incentive (PLI) program to encourage domestic manufacturing of batteries and electrolyzers for green hydrogen production. Initially, financial support could be provided through programs such as Viability Gap Financing (VGF) to make these technologies more affordable. When economies of scale occur, these technologies become price competitive, allowing capacity development and a higher share of renewable energy.
Investing in thermal power to help India overcome the energy crisis risks diverting limited financial resources away from cheaper clean energy sources. Furthermore, investing in a thermal plant effectively secures the investment for 25 to 30 years or more at any stage of the value chain.