Flexible power prices will help end India's shortage

The Union government says that there is enough coal, three days’ requirements, on average at India‘s thermal power plants. That does not change the fact that this average supply does not materialise at every plant – some survive hand-to-mouth, or, to look at the bright side, with just-in-time supplies of the fuel. The norm is three weeks’ stocks. At the root of the shortage that now threatens load-shedding is Indian politicians’ obsession that power must be cheap. Raise petrol and diesel prices as much as you want, adding slab after padded slab of tax to their prices, but keep power prices rigidly low, never mind if these break the financial back of power utilities, make them run up dues to power generators and impose a heavy debt burden on the state governments that borrow on their behalf. Ending rigidity of power prices is the first step to ending coal shortage.

Instal smart meters, have time-of-day tariffs that rise during hours of high demand and fall when demand abates. On a longer-term basis, institute open access, so that industry can buy reliable power, paying higher prices that would still be lower than their own captive generation. Restructure all fixed tariffs as dual tariffs, so that fuel costs can be passed through, instead of forcing some power plants dependent on imported coal to stop producing, crying force majeure, having bid unsustainably low tariffs to win orders. Stipulate a penalty they must pay to switch over to flexible tariffs that pass fuel price through. There is no power as costly as no power. Right now, global gas supplies are strained, thanks to depletion of reserves in the US and Europe, thanks to severe, extended cold spells in the winter and extra-hot summers and droughts that shrivelled hydel generation. Step up generation of gas and hydrogen from coal, capture the accompanying CO2 and sequester it.

Of course, now that the rains are over, Coal India and captive mines can step up output. Give them export-parity prices. As power prices go up, slash taxes on petro-fuels, to get the politics right.


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