MBA Entrance Exams / #MAT

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Shortage of coal/gas is adding fuel to power short economy

MBA aspirants, who are taking MAT on 1st December, 2013 will be getting questions on Indian and Global Environment.
Please read  Shortage of coal / gas is adding fuel to power-short economy
India suffers from a shortage of electricity generation capacity even though it is the fourth largest consumer of energy after the United States, Russia and China. 
According to the International Energy Agency, the Indian government would have to invest Rs 8,237 billion to provide electricity to the entire population. 
Currently, the electricity sector in India has an installed capacity of 225.13 GW, and captive power plants generate an additional 34.44 GW. 
Electricity in India is generated by burning coal and gas. In fact, 57% of the electricity in India is generated by coal-fired plants, 19% is by hydropower, renewable energy accounts for 12% and natural gas accounts for 9%.
Despite having diverse energy generation mechanisms, India continues to face power shortages. Technical problems, faulty power grids and illegal tapping of electric lines have led to a significant decline in the amount of electricity reaching the consumers. Now, the shortage of coal and gas is adding fuel to the power-short economy.
The output of gas in India has been declining since April 2010 because of ageing fields and geological problems at a field operated by Reliance Industries in the Bay of Bengal.
In fact, the gas output has reduced by 16.7 percent to 2.94 billion cubic meters in a span of one year, between June 2012 and June 2013. 
In June 2013, the Indian government increased the price of gas to encourage producers to increase the output of gas and to find alternative supplies. However, the government’s measures have proved to be futile. 
The Ministry of Power has tried its best to divert gas to power stations but in vain. These attempts have not yielded results so far, which means that electricity shortages in India would worsen in the next few months. 
According to K V B Reddy, Executive Director of Essar Power, the resources – coal and gas – are depleting at an unsustainable rate that it may take a few years for power plants in India to generate electricity in required amounts.
Also, it costs Rp 4-4.5 to generate one unit of power using local gas. If companies switched to imported gas, the cost of generating one unit of power will increase to Rs7-8 per unit, which is not profitable for businesses.
This is the reason why Essar Power is planning to convert its Hazira Plant (515 MW) and Bhander Plant (500 MW) to coal-fired plants. Essar Power’s decision to switch to coal will be costly in the short run. Also, the switch will result in temporary decline in power output capacity to 430 MW.
Essar Power would need approximately 1.7 million tonnes of coal every year for the operation of its plants. Since there is a shortage of coal in the country, Essar Power would have to import coal from neighboring countries. According to experts, Essar Power might be forced to raise its coal imports to 9.4 million by 2016. 
This is a 22 percent increase as compared to the present level of coal imports. Although the existence of these coal-fired plants may be beneficial in the long run, there are a number of short-term setbacks that Essar would have to deal with. 
Apart from the sharp decline in the power output capacity, the switch to coal-fired plants will set the company back by Rp 12,216 million.Not all power companies in India are able to follow in the footsteps of Essar Power due to financial constraints. 
GVK Power and Infrastructure claims it is not feasible to carry out the conversion unless the government amends the current power purchase agreement. At present, one of GVK’s plants is operating at 12 percent of its capacity because of the shortage of gas.
The shortage of coal and gas has definitely added fuel to our power-short economy, and if nothing is done to increase the supply of coal and gas, India might become a victim of power crisis. 
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