Power Outages and Rising Costs Hit Indian Factories

Factories, metal smelting units and Indian households are grappling with power outages and rising energy costs due to a sharp decline in coal stocks at the country's power plants and the spread of its effects across the entire economy. The story on power outages and rising costs for Indian factories first appeared on Safir Arjan.

According to Ambassador Arjan, the weakest monsoon season since 2015 has reduced hydropower production and at the same time, warmer than usual weather has increased the demand for cooling and irrigation systems. This situation has caused coal-fired power plants, which supply about two-thirds of India's electricity, to use up their reserves at a high rate.

As demand outstrips supply in the power grid, smaller factories, farmers, and households have faced power outages. Meanwhile, large industrial customers—including those in the metal smelting, chemical and paper industries—can't get enough fuel to generate their own electricity because state-owned Coal India Ltd has prioritized delivering fuel to power plants connected to the national grid.

The power shortage highlights the growing role of inclement weather on India's economy. The reduction of monsoon rains in this country was caused by the unprecedented phenomenon of "El Nino". It also shows how the country's continued dependence on fossil fuels limits its ability to respond to climate change.

According to the announcement of the Ministry of Power of India, as of Saturday, October 10, fuel reserves in almost half of the coal-fired power plants had decreased to less than a quarter of the required amount. Late monsoon rains last month in the coal mining areas in the east of the country exacerbated these shortages and, in addition to reducing production, also disrupted fuel rail transportation.

In the northern state of Punjab, homes and industries are suffering from prolonged power outages. Badish Jindal, who runs a steel wire factory in the industrial city of Ludhiana, said frequent power outages of three to four hours have driven up energy costs as his factory has had to use expensive backup generators.

He said: "Power cuts are unplanned. This problem makes planning for operation and delivery of goods difficult and affects the quality of the product. "Suddenly stopping and starting machines when the power is turned on and off increases the risk of accidents."

Data from the Indian Power Grid Control Center shows that the country's power grid faced an average shortfall of nearly 4 gigawatts per day in the first 10 days of October. According to Bloomberg calculations, this amount of energy is enough to supply electricity to about two million rural households in India.

Rajiv Agarwal, general secretary of the Private Power Producers Association of India (which represents large industrial consumers), said the policy of prioritizing power plants connected to the national grid has put companies that generate their electricity from coal at a huge disadvantage.

He said that these companies have to pay high prices in Coal India's auctions and buy expensive electricity from the national grid.

Coal India's average markup over base price in cash sales stood at 94% in September, compared to 59% in August. The mining company's data shows that two of its subsidiaries — Northern Coalfields and Southeastern Coalfields — bid more than 200 percent above the base rate in last month's auctions.

For those consumers who get their electricity from the national grid, bills have risen in most Indian states over the past few years, according to a Bloomberg report. This increase was caused by several factors, including the increase in the price of coal and the cost of upgrading the national electricity grid.