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Coal shortage: Will your electricity bill go up?

NEW DELHI: Power prices have surged to record highs globally, driven by shortages in Asia and Europe.
The global stock market has been jittery on concerns over rising energy costs which are likely to stoke inflation and curtail economic recovery, especially in a country like India where petrol and diesel prices are already at all-time highs.
The coal shortage among thermal power plants across the country led to a surge in spot market prices in power exchange.
Spot prices have more than tripled over the past two weeks to Rs 16.5 per unit on Monday, from Rs 4.4 in September. Many generators and industrial users are being forced to buy electricity at these high rates as shortage of coal has forced rotational power cuts in several states.
In Andhra Pradesh, prices on power exchanges trebled to Rs 15 for a unit of power. In Punjab, state-run power discom Punjab State Power Corporation (PSPCL) was forced to buy from the power exchange around 1,500 MW of power for Rs 14.46 per unit on Monday, while a day earlier it bought 285 lakh units at an average price of Rs 11.6 per unit.
To meet the shortage of electricity, UP Power Corporation Limited is also buying extra power on an emergency basis. State-run Gujarat Urja Vikas Nigam Ltd (GUVNL) is buying around 100 million units of power daily at a cost of Rs 150 crore to ensure there are no power cuts.
The Centre finally stepped in and asked state-owned Coal India to ramp up supply while railways has been tasked to make available rakes for fuel transportation to power plants.
The power ministry has also directed power companies to boost supply to Delhi. Power producers have been asked to import up to 10% of their coal needs. The power ministry has directed two generators – NTPC and Damodar Valley Corp – to ensure that distribution companies (discoms) of Delhi get as much power as requisitioned by them.
However, NTPC stated that it has been making electricity available to the national capital but the distribution companies have been scheduling only 70% of power made available to them, following which the government warned states that their power supplies will be curbed if they are found selling electricity on power exchanges to cash in on surging prices.
How does this buying and selling of power work?
Public companies mostly dominate the power sector except in the generation and distribution sectors where private players are involved.
The Power Grid Corporation of India Limited (PGCIL) is the Central Transmission Utility (CTU), responsible for the majority of the inter-state transmission projects.
Similarly, each state has a State Transmission Utility (STU) along with private transmission companies which are responsible for setting up intra-state transmission projects. In addition, there exists a wholesale electricity market ecosystem between generators and large consumers at both national and state level.
Transmission utilities carry bulk power from the generation plants to the distribution substations through a grid and at high voltages.
Distribution utilities supply electricity from the substations to individual consumers through a distribution network.
In cities such as Delhi, Mumbai, Ahmedabad, and Kolkata, private entities own the distribution business.
Discoms purchase power from generation companies through power purchase agreements (PPAs), and supply it to their consumers.
So for the end user to receive good quality electricity it is important that the discoms function well.
However, discoms across the country have been facing high levels of losses and are struggling with debt, which makes it difficult for them to purchase power, and invest in the distribution network. This leads to a shortfall in power supply, and poor distribution infrastructure. And this is where the electricity market comes into play.
Electricity in India is bought and sold in the power market.
Power transactions involve a buyer and a seller, which is either a distribution company (DISCOM), a generation company (GENCO), a power exchange, or a bulk consumer.
Now, urban power consumption peaks in the evening because of a large number of users and also during peak summers and winters because of the use of heavy electrical appliances like air conditioners, heaters, etc.
Rural consumption peaks early in the morning because of the use of water pumps for irrigation.
In peak demand scenarios, the contracted power may become insufficient and more power then has to be bought through short-term trading. States with shortages have to buy electricity from the market at prohibitive costs which is why energy price inflation has become the biggest risk to growth recovery in India.
So in short, power can be bought and sold in the short-term market on a “bilateral” basis or on power exchanges such as IEX in a way similar to stocks being bought and sold on the stock exchanges. And, buying some amount of expensive power is almost inevitable, given that cheaper government-owned stations are unable to meet energy requirements.
Ideally, the bulk of a state’s power should come from cheaper long-term contracts. But cash-strapped state boards often prefer to buy relatively high cost power in short term markets, often from one day to the next, depending on their cash position.
Moreover, short-term power does not require additional investment in transmission lines.
The outstanding dues of the Maharashtra state utility to Coal India were Rs 3,176.1 crore at the end of FY21, while the dues of Uttar Pradesh utility were Rs 2,743.1 crore. Dues of the Tamil Nadu state utility stood at Rs 1,281.7 crore, and that of the Rajasthan state utility were Rs 774 crore. Ironically, these four states have among the highest thermal capacities but with either zero days of stock or just one day of stock as on October 10
What does this higher spot price mean for the consumer?
Most states in India supply free or subsidised power to certain categories of consumers, primarily domestic and agricultural users through variable subsidies.
But subsidised power inflicts massive losses on power distribution companies (discoms) and affects their ability to pay power producers. So there is a likelihood of electricity prices rising as higher priced coals would have to be imported.
In a major policy change, China has allowed its coal-fired power plants to charge their industrial and commercial customers market-driven prices.
In India too this move is likely but importing coal at the prevailing high prices and at such short notice may not be possible. Coal imported from Indonesia is currently at a historic high of $160 per tonne, from about $50 a tonne in March, which is nearly five times the price of domestic coal. The end consumer will soon have to pay a higher price for expensive electricity bought by power discoms, which could translate into economy-wide inflation.



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