Energy markets are complex and capable of generating vicious volatility yielding humbling experiences to mighty nations. In February 2021, Texas US weathered major power outages and rolling blackouts for several days in freezing cold. At least 57 people lost life. Despite being the leading producer of electricity and natural gas in the US it became a victim of the energy crisis. Electricity price soared to $9 per KWh making it 75 times the usual price of 12cent/KWh. Natural Gas, generally available at around $10/MMBTU shot up to $400/MMBTU. Electricity markets turned savage. Renewables in the Texas energy basket represented 8% in 2010 and now it is 25%. The intermittency of renewable energy showed its dark side. The periodic Seasonal Assessment of Resource Adequacy (SARA) reports, focusing on the sufficiency of operating reserves to supply power, had not indicated anything unusual.
China experienced blackouts too. Commitment to achieve peak emissions by 2030 and to turn carbon neutral by 2060 led to fall in coal production. July 2021 production fell to 314 million tonnes, a 26-month low. Coal futures rose to a record high of $200 per tonne. Targeting global leadership, it wishes to wash the tag of ‘largest polluter’. In 2017, Trump exited the 2015 Paris Agreement on climate change mitigation. Xi Jinping seized the opportunity to wrest the mantle of mitigating threats arising from climate change. Ambitious announcements followed and energy intensity in 2018 reduced by a whopping 46% compared to 2005 level. Come 2021, Biden replaced Trump and US once again took lead in strategizing carbon emissions curbs at the global level. It showed in his April 2021 meeting with heads of the top carbon-emitting countries’ seeking their consent on cutting carbon emissions.
This of course jolted China’s ambitions to achieve leadership in global climate change policy and initiatives. But, the pursuit of leadership continues and efforts to reduce energy intensity continued too. These measures would have shown shortages much earlier but the crippling bow of Covid-19 and dampened demand covered the shortages. Now with the revival of global demand shortages have surfaced. Factors like reduced investment in fossil fuel resources; China’s decision to discontinue Australian coal imports; and heavy rains disrupting Indonesian coal production have contributed significantly to the coal and power shortage in China.
The two most powerful countries grappling with power woes is somewhat scary for the rest of the world. Germany, UK or India, each one of them has shared the scare. Coal stocks were significantly low in Indian power plants during October. A crisis like situation had arisen prompting the Union Minister for Power and the Home Minister to provide assurances of adequate coal availability for the power plants. Insecurity refused to abate as allegations of shortages kept emanating from some states. Delhi CM raised concerns about the availability of coal and natural gas. His Power Minister showed displeasure about the non-availability of APM gas. Surplus power on the exchange was available but priced around Rs 17 per unit. Natural gas too was available in an open market but at $16/mmbtu. International coal was also available but at much higher prices. Who will foot the bill? Delhi wishes to have cheaper APM gas for its power plants and so would the other states. APM gas production is inadequate to fulfil the demand of the states. Reports show that Discoms in Delhi do not wish to schedule power from expensive power generating units. Delhi has a per capita income of Rs3.9 lakhs and it stopped scheduling power from Dadri I NTPC power station because of higher cost. Uttar Pradesh has a per capita income of Rs 0.73 lakhs but it continued to buy from Dadri. Who should be buying the higher-priced power – the richer state or the poorer state?
The high price of fossil fuels is a global phenomenon but the blame game in India continued as if it were a local phenomenon. Tata Ultra Mega Power Plant and Adani power plants at Mundra use imported coal. They have cut imports significantly, almost by 50% collectively because international coal prices rose from $60 to $200 per tonne. Discoms would not buy expensive power from these plants. End consumers too would not like to share the burden of higher prices. No one is willing to pay the market price. Shortages are bound to show up. Stakeholders have some truth in support of their respective stances. But, these are partial truths that reflect only their part of the market. It may be true that Delhi’s government not getting adequate APM natural gas but India produces grossly inadequate APM gas is also a truth.
These partial truths create noise and a lack of comprehension, vision and expression about the power market. The power market is a complex integrated market of producers of coal, natural gas, traders, power generators; power transmitters, discoms and the final consumers. High prices need to be absorbed somewhere within this value chain if adequate supply is to be met. But who?
Meanwhile, the weather has cooled the power demand in Delhi. Coal India is supplying record high coal to power plants. Australian Coal boycotted by China is now available for India at much discounted price. The good news is that higher energy demand in the country has been largely met till now. This too shall pass!