‘Reforms’ and ‘performance’ are among the most commonly used terms by the powers that be. And these are vital in India’s fuel supply versus electricity generation debate.

The story that unfolds every monsoon is of the Power Ministry warning the Coal Ministry about impending electricity supply shortage and the latter stating there’s enough supply but logistics is the issue, thus pointing fingers at the Railways.

And every year, the three ministries involved come up with short-term solutions. Therefore, for the power sector to become future ready, there is a need to find a long-term solution.

What can be an effective solution?

There are 269 thermal power plants in India, according to the Central Electricity Authority. Of these, about 30 are within 20 km of a coal mine and around 50 within 200 km. Each unit has a capacity of 125-300 MW.

A much-talked-about and suitable solution is to have pit-head power plants. A policy for such plants has been in existence for some time now.

A pit-head plant is any captive or stand-alone power unit having a captive transportation system for the exclusive movement of coal — from the loading point at the mine up to the unloading point at the power station, without using any other mode of transportation. This is also called the merry-go-round system.

This, according to industry players, both in power and coal, is a sensible proposal.

It is easier to wheel power than transport coal. For example, Uttar Pradesh reportedly gets the cheapest electricity from the Sasan project, which is in Madhya Pradesh. A pit-head power plant cuts down on logistics and is, therefore, cost saving. For example, a rake ferrying coal from a mine to a power plant has to return empty.

If the policy is in place, then what is the deterrent? Some power plants have been built for political reasons — in the constituency of someone in power, to please the vote bank.

To set up a coal-based thermal power plant, the site ideally must be selected based on the availability of coal, water, land, transportation facilities, proximity to a coal mine, and load centres. But there are instances where it is done for political reasons.

According to industry watchers, it makes sense to have non pit-head power plants when there isn’t enough generation capacity and plants are running to full capacity. Today, most non pit-head plants are running much below capacity. For example, when Delhi did not have its own power plant, it still did get electricity.

CIL’s supplies

Now, let’s look at coal supply from the largest producer — Coal India Ltd. While dismissing fears of coal shortage, CIL, in its latest statement, said stocks at power plants (as of August 29) are close to 30 million tonnes (mt), including imported fuel. This is substantially higher than the 12.8 mt in August 2021, when the stock plummeted by 11.2 mt in a month. Improved supplies from CIL helped stabilise stocks at power plants. Closing stock in August is at a six-year high, barring 2020 when the pandemic-fuelled slowdown saw the stock touch 37.7 mt.

According to CIL, supplies to the power sector, at 243.3 mt, were 108 per cent of the annual action plan (AAP) target of 225.4 mt, progressive till August FY23.

Supplies have overshot the target by nearly 18 mt. According to CIL, it also breached its AAP target of 276 mt for total off-take. Total supplies rose sharply to 283 mt, during the period under reference with a jump of 7 mt over the target.

CIL’s supplies of 243.3 mt to the power sector during April-August this year were 38.1 mt more than in the same period last year — a double-digit growth of 18.6 per cent.. At 283 mt, total coal off-take till August of the current fiscal, was 23.6 mt more than in the year-ago period — a growth of 9.1 per cent.

In August, CIL supplied 43.8 mt of coal to thermal power plants, posting 16 per cent growth over last year’s 37.8 mt. With coal stocks of 31 mt at CIL’s pit-heads, around 30 mt at power plants, and a little over 10 mt at CIL’s sidings, goods sheds, private washeries, ports and captive plants, there is sufficient availability of coal in the system.

So the argument against pit-head power plants definitely loses steam. But the issue of grid connectivity may be raised. Besides the obvious differences in coal transportation, an important factor is which grids these plants connect to.

National grid

While States would like to have local plants they can connect to their own grids to reduce transmission costs, in most cases they end up with higher coal transportation costs.

National grid connected plants will also improve grid discipline and facilitate efficient use of spare generation capacity which is crucial during the transition to integrate renewables.

Having imported coal as a small part of the mix is important to provide fuel security and also benefit from the price cap that global markets will provide.

A possible solution is that all new plants that are going to come up should be either pit-head or have proper access to the grid. The non- pit-head plants can be phased out slowly. Also, to ensure no supply disruption at any end, tripartite agreements between the generator, the fuel supplier and the transporter should be entered into. This will also help avoid the blame game at the time of coal scarcity. All power purchase agreements should factor in these aspects.

While logistic issues can be solved with this approach, environmental concerns can be addressed by promoting coal gasification. While the National Coal Gasification Mission already exists, CIL is working on Surface Coal Gasification projects.

Clearly, with decision-makers aware of the challenges, now is the time to have a long-term plan and implement it. Short-term solutions, as the name suggests, will only have a short shelf-life.

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