India is facing the worst power crisis in over 6 years due to a shortage of coal. About 70% of India’s electricity is generated from coal. And due to the shortage, the states have imposed power cuts for a few hours and have asked the citizens to reduce their use of electricity as much as possible.
Due to the electricity crises in India, around 22 power plants have been closed in various states of the country.
| States | Power plants Shut |
| Maharashtra | 13 |
| Punjab | 3 |
| Andhra Pradesh | 2 |
| Kerala | 4 |
Reasons behind the Power Crises
India is not only the largest producer of coal but also the biggest importer of coal. About 30% of India’s coal demand is fulfilled by imports.
Several reasons are contributing to the power crises across the country. Let’s understand them in brief.
- Due to unexpected rains in various parts of the country, it has become difficult for coal miners to extract coal from the ground and supply it to the electricity generation company.
- The halting of factories and businesses during the lockdown resulted in a sharp fall in energy consumption. However, following the lockdown, power demand has surpassed estimates.
- India is not only the largest producer of coal but also the largest importer of coal. About 30% of India’s coal demand is met by imports. The world is facing supply and transportation problems due to the war between Russia and Ukraine. And therefore, India is not able to import coal.
- In addition to imports, as international coal prices increased, India reduced coal imports by 30% (Australia is the largest exporter of coal by exporting 70% of its coal production.)
- According to government regulations, the factory must keep 15 to 20 days’ worth of supply on hand in case of an emergency. However, producers did not follow this guideline, which majorly contributed to power cuts in states.
These all factors contribute to the power crises in the country. However, electricity demand is increasing due to summer heat waves.
Considering the fundamentals of economics into effect, the price of energy is likely to rise due to the shortage of supply and growing demand.
Solution for the electricity crises in India
Coal India Limited produces over 80% of India’s coal. Though energy firms use the majority of the coal produced, steel, cement, and other sectors also use coal for their operations. For a short time, the government has instructed the energy industry to increase their ratio of coal usage.
However, when thinking about the long term, the transformation of thermal energy (coal) to green energy (solar, wind, etc.) is the only solution to reduce the dependency on coal.
India declared an optimistic goal of 175 GW of green energy by 2022 in 2016, and as of now, it has 95 GW of operational wind and solar power, which means a 51-GW objective failure.
“Our study reveals that there could be no electricity crisis in India if we had met our green energy objective.” Supplementary renewables production would have eliminated the shortage and enabled power companies to conserve their decreasing coal inventories for even longer.
Bottom Line:
Electricity has become a common human need. The shortage of coal and the electricity crises are a major concern for the people around the country. The government of India is addressing the issue and taking initiatives to overcome the crises soon.
However, we have no idea how long the crisis will last. As an investor, you should seek out firms that would benefit from rising coal prices and invest in them after conducting a thorough fundamental analysis.
I hope you found the article informative and interesting. Let us know in the comments below, “Are you facing power cuts in your city?”