Coal supply issues and thermal power capacity addition

[Manu Sharma]

In another thread on Green-India, Prof. Shelar wrote: 

thanks for posting an important article from a reputed paper- economist. i have  summarized the arguments [...]

Dear Prof. Shelar,

This Economist article (Future is Black, 21st Jan) is primarily about the state of coal supply and its implications on thermal power capacity addition. While it covers the problems with supply and distribution in some detail -- the mining issues, land acquisition, state of electricity boards, grossly inefficient transmission & distribution, the lack of decision making at every level --  it never dives into renewable energy or nuclear power except for the bit on large hydro. 

Nor does it pay adequate attention to the emission reduction imperative in the context of climate change. Therefore I wouldn't draw the inferences #1 through 4 in your list based on this story. 

Among the things I liked in particular about the article was how well it illustrates how things work (rather don't work) in India. Sample the following.

In India, though, no one expects perfect design. The economy sits somewhere between the old command-and-control approach and the new ways of markets and private capital. What is worrying is that India’s talent for improvisation — a collective ability to muddle through — has deserted it when it comes to providing [reliable] electricity.

 

The next para provides more insights into red tapism and politics surrounding the issue. 

The problem has been clear for ages. A circuitous blame game is taking place. Ministries squabble but no one knocks heads together. If you trawl round the offices of industry bosses the livid letters they brandish trace their incandescent correspondence with each other. 

Then it goes on to draw the profile of Coal India which is interesting reading. It illustrates the helplessness of its top executives and how little things are expected to change under status quo.

What is beyond doubt, though, is that Coal India is not digging fast enough. Output has been flat for the past two years—a dire result. India’s ratio of production to reserves is middling by global standards and is well below China’s. Assuming production picks up and grows in line with the long-term average, a vast shortfall in production will still stunt growth in power generation.

 

The authors then go into coal imports and why they are economically infeasible at perhaps four times the cost of domestic coal (after adjusting for quality). The next section talks about bankrupt electricity boards, illustrating the circuitous problem of low electricity tariffs and inefficient transmission. The consequence of this is insightful.

if the cost of the power rises because of the expense of imported coal, these outfits are neither strong enough to absorb the financial hit themselves nor capable of easily passing it through by raising prices to customers. That means it is their suppliers, the generating companies, that get squashed.

The article then goes into power generation financing problems and concludes... 

In theory there are two solutions to the looming power problem. One is to privatise the electricity boards, end Coal India’s de facto monopoly or break it up, create new regulators and give teeth to existing ones, and then hope that market forces raise standards, tariffs and production. The other is to resort to command-and-control, with a single authority breaking heads. Either of these approaches might be better than today’s squabbling and passivity. Unfortunately, neither is likely.

I completely agree. With a spineless government that has a wimp for a PM, who believes in consensus based decision making when bold decisions are needed and seeks the middle ground that's acceptable to all parties in any conflict rather than taking the right decision, I have no hope that this issue will be resolved before it gets worse. Much worse perhaps. 

So, if I am to draw any conclusions from "The Future is Black" it wouldn't be any different from what the authors draw themselves, that, given the stagnant coal production and massive planned capacity addition -- we're headed for a massive shortfall in coal supply.  and that the massive growth in capacity addition that is projected in the 12th five year plan (100 GW) is unlikely to take off, well, at least not in the initial stages.  

Therefore, the recent report by Shripad Dharmadhikary (co-authored with Prayas) which painted a disturbing picture about massive expansion of thermal power capacity (200 GW already approved by MoEF and another 300 GW in pipeline) while accurate, is only one side of the picture. Clearly, there isn't enough coal to allow that kind of expansion. 

At least not in the short-term (2-3 years) in my view. The issue however is closely linked with economic growth so some kind of resolution will have to be found. The article hints at that in the concluding section. 

That leaves an alternative approach of administrative fiat and improvisation. It hasn't worked so far but there are some grounds for hope. A recent court ruling has prodded many electricity boards to raise tariffs. Crafty ways are being cooked up to allow private miners to do the digging while Coal India retains its notional title to the coal, and to grant permission for more “captive” mines where a private generator digs up its own fuel. 

[...] 

It is a safe bet that India’s skills of improvisation will recover—helped by stern words from the prime minister. 

Still, incremental improvements cannot replace reform and the results the former will deliver will still only allow us to muddle through as is rightly suggested in the final lines of the article. 

If the test is avoiding a national catastrophe, India’s power sector will pass it. But if it is delivering the infrastructure that can allow the economy to grow at close to a double-digit pace and industrialise rapidly, India is failing.

Therefore in my view, from climate perspective, this is a positive story. It implies that India is NOT poised for a massive explosion in coal based thermal capacity unless the issues of coal supply are sorted out, which doesn't seem to be happening at the moment. This is a big relief. It looked like we are about to replicate the astounding periods of growth in power generation capacity and carbon emissions that China witnessed in the last decade. 

The economist story shows this isn't so. 

As an aside, it would have been interesting to see the story talk about the relationship between oil prices and cost of imported coal as the two are closely linked. In fact, much of the rise in coal prices could perhaps to attributed to rising oil prices in the last couple of years. 

"Peak oil" experts such as, Chris Martenson, say we're only 1-2 years away from the concept to becoming more widely acknowledged by mainstream media. As it does, the relationship between oil and coal prices will also become more apparent. They also say that once "peak oil" is finally acknowledged by policy makers, they expect one of the countries to nationalise oil. This they say will lead to massive increase in oil price overnight. If this happens, the implications for cost of imported coal are obvious. 

Thanks,

Manu

____________

Manu Sharma

Climate Revolution Initiative

http://climaterevolution.net/

On Mon, Feb 6, 2012 at 3:48 PM, mahesh shelar <mahesh...@yahoo.co.in> wrote:

Dear Manu Sharma

thanks for posting an important  article  from a reputed paper- economist .i have  summarized the arguments below.This exercise was done by me for better comprehension.However my critique is gets us into too pessimistic a mood.with lot of interesting things happening on energy efficiency as well as power sector reforms(setting up of regulatory commissions etc) something optimistic could have been more inspiring.My second critique is-the struggles associated with rehabilitation of displaced community( large hydro or even wind and coal) are shown to be failure of democratic society.we are fortunate that India unlike china is democratic and the voices of protests are heard.ofcourse the bureaucratic maze (red tapism) should be cleared  and the public versus private debate should be reoriented to delivery through competition as the author argues(and not through iron fists as also is the suggestion)

Summarizing below my comprehension of the article

Regards

Mahesh

Power is the bottleneck for India..Power could be tapped from coal,hydro,nuclear,solar  and wind resources ..However the future is pessimist  for the following reasons

1.Large hydro was thought to be an important energy source by energy planners.However the controversy of large dams (displacement,rehabilitation and environmental concerns) couldn’t  convert   the potential to generation figures.So large hydro is no longer an important resource unlike in China which (due to command and control economy) could build large dams and tap hydro

2.Potential of tapping wind and solar resources are constrainted by large costs as well as land acquisition troubles though some states like Tamilnadu and Gujarat could contribute a bit.

3.Nuclear energy is unlikely to play important role in energy mix because of fear psychosis inspite of civilian nuclear deal with America and private investments in nuclear are unlikely considering the “unlimited liability clause” in event of nuclear accidents.

4.So for India the option is clearly fossil fuels –coal and gas.However unlike China we haven’t engaged with central Asia actively(china has gone ahead with pipelines etc). So Coal remains the major option for Indian power sector.

5.Power sector has seen huge private investments ,however more investments are unlikely considering the incapability of Coal India, a state owned monopoly, to cater to demand.So coal unless Coal India is Reformed(privatized or state acts with iron fist as in China) coal shortages are likely.

6.Private sector power generation companies however have little faith in reforms and are gearing up to import coal.Imported coal is however four times costlier and this is clearly a risk both for private companies as well as state (considering it will worsen balance of payment crisis ) Add to this the inefficient  power distribution companies and the power subsidy and  power theft ,the power distribution companies are doomed to fail (therby  worsening even the power distribution network)

So overall the future is black/dark says the economist.

 

 

Prof Mahesh Shelar M.Tech Energy Systems Engg Certified Energy Auditor Department of Mechanical Engg KKW Institute of Engg Education and Research NASHIK 9822052351

From: Manu Sharma <orang...@gmail.com>
To: Green-India <green...@googlegroups.com>
Cc: India Environmental Journalists <indi...@googlegroups.com>; TiE-Cleantech-India-Forum <tie-cleantec...@googlegroups.com>
Sent: Saturday, 28 January 2012 4:34 PM
Subject: [Green-India]

Dear all,

I'm including below a recent story from The Economist on India's power sector that craftily illustrates well known problems as well as a number of original insights regarding coal supply and new capacity expansion.  

It's also an excellent piece of journalism.

_____________________________

The future is black

Power is essential for India’s long-term growth. But electricity is unlikely to flow fast enough 

[...] 

Source

Thanks,

Manu

[mahesh shelar]

Dear Manu

i now agree that the article should be understood from coal supply perspective.

It could be interesting to go through  through some studies /reports exclusively devoted to this issue.
Members can direct us to the relevant resources.
     3/4th of world's oil resources are tapped by 13 biggest  state backed oil companies .Natural Gas resources are also mostly state owned (Gazprom-Russian company is biggest natural gas company).These companies however dont report to respective ministries.Government is the shareholder but they employ professionals and have a political will to make these companies competitive.It could be interesting to get Coal India executives(preferably retired) talk about Coal India.Whether it is the ownership (state owned) to blame or regulation and right market based incentives do help?
     State Electricity Boards are being reformed and being tried to manage professionally (through formation of companies and setting of regulatory bodies).whether that has really helped?Or outright privatization is the way out?
    understanding oil price and coal price linkage is an excellent idea.
regards

Mahesh

Prof Mahesh Shelar
M.Tech Energy Systems Engg
Certified Energy Auditor
Department of Mechanical Engg
KKW Institute of Engg Education and Research
NASHIK
9822052351

From: Manu Sharma <orang...@gmail.com>
To: Green-India <green...@googlegroups.com>

Cc: TiE-Cleantech-India-Forum <tie-cleantec...@googlegroups.com>; India Environmental Journalists <indi...@googlegroups.com>
Sent: Wednesday, 8 February 2012 12:31 PM
Subject: [Green-India] Coal supply issues and thermal power capacity addition

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[Manu Sharma]

Prof. Mahesh Shelar wrote:

State Electricity Boards are being reformed and being tried to manage professionally [...] whether that has really helped? Or outright privatization is the way out?

Dear Prof. Shelar,

I'm not really sure, I'd like to see a way out of coal supply issues. Inefficient T&D, yes, that needs to improve big time. 

But as long as supply of fossil fuel is a problem, a few things can be counted as certain: 

• Energy prices will go up
• Efficiency will improve
• Renewables will be sought

Thus climate change mitigation will get a real chance - driven not by politics but by market forces. 

 

Remember the oil crisis of the 70's? :-)

Thanks,

Manu

______________

[soumyabrata rahut]

While we talk of electricity in India the debate is always subverted by availability, however this is not necessarily the right direction the debate needs to center around access.

let a take a small closed system with 5 customers. 1 very poor, one is middle class, one very rich,one is commercial, one is Industrial. typically the middle class is consuming more while the rich is consuming al lot more of everything therefore the commercial and the Industrial consumers are also consuming more. While the poor is not having an increase or is having a marginal increase in consumption.

In such a scenario typically two approaches can be taken, one could be of availability where we say the increase in availability will be equal orgreater to the increase in demand of the whole system so the poor consumer middle class and rich consumer demands and the fall out of their demand on industrial and commercial.
I think such as approach will always mean availability lagging demand.

Or we think of access. we approach the problem where we ensure that given the available resource (electricity) an equitable access is provided to all the consumers first and then we start increasing availability.

the main difference is while the former approach will essentially mean an increase in the divide of resource access in the system the latter might result in a more equitable growth process though it will mean curtailing the growth at the top strata specifically by rapid increase in resource prices as consumption goes up.

other than that i think prof Shelar is right. a shortage in power in an access scenario will force people to be more efficient and will force up take of RE.

regards
soumyabrata