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Context:

• India could be on the verge of a power crisis as the stock of coal held by the country’s thermal power plants has hit critically low levels.
• Many power plants are operating with zero reserve stock or with stocks that could last just a few days. 

Extent of Crisis:

• India’s 135 thermal power plants overall had on average coal stock that would last just four days.
• In all, 112 of the 135 power plants are operating with stocks that are at critical or super-critical levels.
• The government usually mandates the power plants to hold stocks that would last at least two weeks.
• India relies on coal to meet over 70% of its power needs, and Coal India Limited (CIL) supplies over 80% of the total coal.
• The current coal crisis comes amid a broader energy crisis across the world with the prices of natural gas, coal and oil rising sharply in the international market.

Reason behind Coal Crisis:

• The current crisis in the availability of coal has been the result of lacklustre domestic production and a sharp drop in imports over the last few years. 
• Domestic production peaked at 12.80 exajoules (EJ) worth of coal in 2018.
• At the same time, the amount of coal imported from other countries to meet domestic demand, too, has dropped significantly. Coal imports have dropped from the peak of 6.46 EJ in 2016 to 4.22 EJ in 2020. 
• Populist politics has ensured that the price that many consumers pay for power is not commensurate with the production costs. In FY19, for instance, the revenues of distribution companies covered only about 70% of their total costs. 
• According to the credit rating agency ICRA, the consolidated debt of public sector distribution companies is expected to hit ₹ 6 trillion in FY22.

Factors for Insufficient Supply

• flooding in coal-mining areas,
• transport issues,
• labor disruptions in major coal-mining countries
• The sudden rise in power demand as the economy revives from the pandemic. 
• According to the government, indebted power generators and distributors owe over ₹21,000 crore to CIL. So, overall, there is very little financial incentive that major producers across the supply chain, including miners, possess to ramp up production.

Way Forward:

• India and China, the top two consumers of coal in the world, are expected to further increase production of fossil fuels. 
• The Indian government has been pushing CIL to ramp up production to meet the rising demand and cut down on the country’s reliance on imported coal. However, it is expected to ease restrictions on imported coal in the near future to tide over the crisis. 
• The government last week mandated the thermal power plants to blend imported coal with domestic coal up to a limit of 10%.
• With coal selling at high prices in the international market and CIL unable to meet production targets, many power generators may be unable to increase their output unless they are allowed to price their output freely.

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