On the whole, less coal for India to mine

GoI’s use of the emergency provision of the Electricity Act to direct the Central Electricity Regulatory Commission (CERC) to give power plants the ability to increase the use of imported coal will help bring more generating capacity online. This is a necessary move, given the rising demand with large parts of the country experiencing a heatwave. But GoI must go beyond firefighting mode. It should seize this opportunity to push for power sector reforms, especially with regard to tariff structure, market design and subsidies.

A higher share of imported coal in the blend should slow the need to open new mines. This would help avoid increasing investment into new domestic mines that would either bind India to continued, and increased, use of coal, or create a whole class of stranded assets. GoI’s directive will increase the cost of electricity for distribution companies. According to power minister R K Singh, using 10% imported coal in the blend leads to an increase of 50 paise per unit in tariff. Even so, it will avoid a situation of unmet demand. Rather than allowing another downward financial spiral for discoms, structural changes that could lay the foundation of financially sustainable discoms should be made. This includes doing away with perverse cross-subsidies where commercial and industrial units underwrite lower residential tariffs. Reforms should also correct the existing market design that privileges fossil fuels over renewables. Regulatory and infrastructural framework that would make rooftop solar a viable and attractive option should be put in place.

This directive creates space for GoI to work with stakeholders to make the changes that will improve energy security and human and environmental well-being, allowing for the transition to a low-carbon energy development pathway. Rather than fight it, states and other stakeholders must see the increased use of imports in the coal blend as buying time to focus on measures such as energy efficiency, jettisoning harmful subsidies, to lay the groundwork for a robust power sector.


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