Impact of Shortage of Coal in Power Sector

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Impact of Shortage
of CoalTitle
in Power
Sector Date, Venue, etc..( Arial, Font size 18 )
Steps for Quick Relief
Amulya Charan – Chief Mentor Tata Power
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India Power Sector Snapshot
• Total Installed Capacity – Over 200GW
• 75 GW more capacity is planned to be added in XIIth Plan.
• Coal has remained and is expected to remain the dominant fuel by far. With
74% of the 12th Plan additions being based on coal, coal share of the total
generation portfolio is expected to be over 60% by the end of 2017 .
• Power Sector facing a major challenge because of fuel shortage both in Coal
and Gas.
• With Coal being the dominant fuel in India’s Power Generation mix, Coal
shortage is a major threat to India’s development story.
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Coal shortage and its Impact on power sector
• Domestic coal productions has been stagnant for last 3 years at around 530
MT, with Coal India failing to ramp up the production to meet the increasing
• With 75% capacity addition in XIIth plan being coal based, we are headed
towards a shortfall of more than 250 MT by 2017.
• 22 GW of generating capacity in 2011-12 was underutilized on account of coal
• Coal shortage forces the end consumer to switch to backup power which is
primarily on diesel. Per unit costs upward of 12 INR/KWh which makes Indian
industry very uncompetitive in global markets. Diesel burning for power
generation is extra Diesel subsidy burden on government and forex outflow
from India.
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Coal shortage and its Impact on power sector
• With total volume of seaborne traded thermal coal in 2011 only 750 MT, if
Indian imports ramp up to 250 MT, this will result in a very tight coal market
resulting in price spike and making power generation on imported coal
• Coal shortage will result in many developers defaulting on their debt, thus
further stressing banks and making financing for new power projects very
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Steps for quick relief
Increased accountability on Coal India Performance
• Production has been stagnant for last three years
• New Technology and skilled man-power absorption at a very low rate.
• Mines not being developed as there is no evacuation possible for the mined coal.
• It was estimated that 60-65 MT of coal was lying ideal at mine head last year and could
not be dispatched to the power plants because of the limited connectivity between mine
head and railway loading point.
Open market for surplus coal production
• No incentive to produce more coal from the allocated captive mine, as there is no open
market to sell that coal.
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Steps for quick relief
Improving financial condition of SEB
• Power generated in the range of 3.5 - 4 INR/KWH from imported coal can be dispatched, but
poor financial condition of distribution companies restricts that.
 Bringing down T&D losses is the most sustainable way to improve finances
 Most SEB have more than 30% T&D losses, and achieving 15% is possible with right policies and
 By reducing T&D losses to 15%, SEB’s will save more than 50 Paise/KWH on power unit purchased at
Open access for Power Customers
• Power from imported coal has a ready market from the commercial and industrial sector with
open access.
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Best way to Import Coal and incentivize power
generation on imported coal for immediate relief
In the short term to fill the gap between coal demand and domestic coal production
coal has to be imported.
Is price pooling the best way to import coal in India, when it has been witnessed in
the past that such measure leads to inefficiencies in the procurement ?
Another model to compensate generation on imported coal could be developing an
imported coal power generation certificate market –
• Each generator in the country will be required to produce a certain percentage of total
generation on imported coal – This % number can be computed annually based upon the
projection on domestic coal production and coal demand.
• Generators producing power using imported coal be issued special “Certificates” by
Regulator for each unit of such power generation.
• If the generator has domestic coal allocation for 100%, he will be required to go to the
market and buy these special “Certificates” to offset the minimum % generation on
imported coal.
• A generator which is generating more power from imported coal as mandated will be
allowed to sell these certificates in the market.
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Long term measures to increase domestic coal
Encourage Underground Mining
• In 2005 around 80 per cent of coal production in India came from open-cast mining,
this compares to 20 per cent in 1971.
• Underground production declined from 51to 44 million tonnes during the period 200108.
Open up domestic coal mining for private participants
• This will sharply increase domestic coal production and also bring the best technology
and industry practices in India.
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