How reliable are coal based power plants considering supply side constraints?
There have been many news reports in recent weeks that a reliable coal supply has become a critical issue for the Indian power sector in recent years, and that because of it the power supply situation is likely to go from bad to worse. The issue has the potential to be a game changer.
The international coal prices are going up steeply, and the supply reliability is being hit very hard. So much so that Tata Power and Reliance Power, which are developing 4,000-MW ultra-mega power projects at Mundra (Gujarat) and Krishnapatnam (Andhra Pradesh) respectively, are reported to be have asked the Power Ministry to allow them to increase the tariffs of their projects as the imported coal sourced from Indonesia for these projects has become dearer. The construction works on the first one is reported to have stopped and the union government has turned down the request to intervene in renegotiating the contract price for the electricity from both these projects.
Many of the new power projects are being planned to be entirely dependent on imported coal. An increasing number of coal power projects, including few UMPPs and IPPs, are being forced to go for blending of domestic coal with 10 to 30% imported coal because of the domestic supply problems. NTPC is reported to be blending imported coal between 7 and 20 per cent across its various stations. According to industry estimates, in about five years, India could be forced to import almost 30 per cent of the total coal required by its power plants, compounding the worries for distribution utilities at large.
As per power sector analysts the Indian banks are at an increased risk of defaults on loans to companies linked to the power sector, as mounting losses in state electricity boards, costly coal and delays in execution of new power plants have made recovery difficult.
The coal supply from Australia, Indonesia and South Africa are expected to become costlier and/or difficult to source due to various domestic reasons in those countries. The unreliability associated with the import of coal was highlighted by the sinking of a coal carrying ship off the coast of Maharastra recently.
The price of domestic coal also increased recently due to Rs. 50 per ton of carbon tax imposed by the Union govt. The losses suffered by the country's distribution utilities, which are estimated to be around Rs 70,000 crore in 2010-11, will go up further due to increased coal prices unless suitable remedial measures are taken.
As per power sector analysts the Indian banks are at an increased risk of defaults on loans to companies linked to the power sector, as mounting losses in state electricity boards, costly coal and delays in execution of new power plants have made recovery difficult. Because of such a scenario banks/financial institutions are reported to have concerns in funding the coal power projects. JSW Energy is reported to have put its Ratnagiri (Maharastra) expansion plans on hold due to costly imported coal, which has already dented its profit. The company believes it would be wiser to defer the plan until there is some clarity on the issue of imported coal.
Despite concerted efforts by the union govt to dilute the existing environmental regulations to allow opening up of more coal mining, the coal supply situation is highly likely to go from bad to worse for a combination of reasons.
Even those coal power plants, which are relying on domestic coal, are facing highly unreliable supply. The Central Electricity Authority (CEA) reports indicate that during the last few years the loss of electricity production due to coal supply problems has been increasing. As per the Standing Committee of the Parliament on Energy, the shortage of coal is expected to impact new capacity addition plans to the tune of 15,000 MW in the current fiscal (2011-12). If NTPC, the high profile central govt undertaking, cannot ensure adequate coal supply to its plants, one can imagine the plight of other state owned/private companies. Karnataka's Raichur TPP has been known to be facing coal shortages for years. The proposals by Karnataka state govt to set up additional coal power plants are halted because of the lack of coal linkage.
In this background there should be no doubts that coal supply situation in the country has become a major problem. Despite concerted efforts by the union govt to dilute the existing environmental regulations to allow opening up of more coal mining, the coal supply situation is highly likely to go from bad to worse for a combination of reasons. Even some of those new coal mines, for which approvals have been accorded, have not got to the development stage due to various reasons. The coal ministry is reported to have withdrawn the allocation of 3 new coal blocks to a large public sector power company because the development of these coal mines was not undertaken within the stipulated period.
It is in this context that we have to consider the unbelievable rate of licenses being issued to set up additional coal power plants in the country. More than 150 coal power plants were reported to have been approved during 2010-11. The Power Ministry expects to see the capacity addition of over 80,000 MW in the 12th plan period (2012-17) at a rate of about 16,000 MW a year. Such a projection by the Power Ministry, and that by Integrated Energy Policy that the coal power capacity has to increase to about 400,000 MW by 2031-32 can be seen as unrealistic in this context. These projections seem to have been arrived at without considering the various constraints in achieving the targets and without due consideration to the social and environmental impacts on our society.
The overall cost to the society for its reliance on coal power is huge, and hence there is an urgent need to review the whole scenario. Our society should objectively consider many benign alternatives available to us to meet the legitimate demand for electricity.
To read more, click here: