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The primary source of electricity generated in the country is by thermal power plants. Majority of these power plants use coal as their primary fuel to generate electricity. At present, India has over 300 gigawatt of thermal power generating capacity. Further, the government plans to add another 86 gigawatt capacity in the next six years. The country is also committed to meet its steep target of adding 100 gigawatt of solar capacity by 2022.
Thus, India's growth today and in the future is dependent on the availability of electricity for consumption. As the standard of living of the people increase, there is an increase in per capita consumption of electricity. Hence, we think the capacity addition is a welcome step taken by the government. The government seems to be planning for the future generation's needs.
But all is not hunky dory. According to a leading financial daily, the issue is that there is more than third of the country's thermal power capacity lying idle. This is further compounded by the fact that the remainder of the capacity has utilization levels of just over 55% due to weak demand. Any increase in the capacity would lead to the utilization levels to decline even further. These falling capacity utilization levels has a domino effect on the other sectors as well. Since these capacities are set up by using debt, any fall in the electricity generation by the power plants leads to lower revenue which results in pressure on these plants to service their interest costs.
What is ailing India's thermal power plants?
The problems faced by these plants are multifold. Some of the power plants that have power supply contracts with distribution companies are lying idle due to non-availability of coal. There are some who do not have power supply contracts but have an assured coal supply contract. Some companies despite having a coal supply assurance from Coal India, the state run miner, are still not receiving coal. The complete focus of the government is on adding capacities but there is little effort from them to solve the problems these plants face once they begin operations.
On one hand the plants are shut due to unavailability of coal. On the other hand, coal supplier to a majority of power plants in India, Coal India's inventory has reached unmanageable levels, wherein the company is unable to store the excess coal anymore and has resorted to scaling down its production. In addition, lack of availability of water, equipment failure all contribute to the sorry state of affairs of thermal power plants in the country.
There is no denying that, India would need to build huge power capacity as the country develops. We believe, this however, should be well thought out and planned so as it does not result in capacities shutting down in the future resulting in huge wastage of labour and capital.
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