Coal in India

Despite the rapid increase in electricity generation in recent years, supplyhas still not kept up with demand growth and India has not generatedenough electricity to meet its requirements for many years. One of the mainways electricity distribution companies have managed this shortfall hasbeen to load shed which involves cutting power to one part of the systemso that the entire network is not overloaded. Distribution companies havetried to reduce the effect of load shedding through advanced warning sothat consumers can plan ahead. However, it generally occurs during periodsof peak use—5pm until 11pm (IEA 2014b). Load shedding is disruptive tobusiness, industry, hospitals, schools and households that do not haveaccess to electricity for the duration of the outage. Frequent or prolongedload shedding can reduce economic activity or be a deterrent to businessinvestment. However, load shedding is typically directed to consumers thatpay the least for electricity—the residential and agricultural sectors (EIA2014).Despite the rapid increasein electricity generation inrecent years, supply has stillnot kept up with demandgrowth and India has notgenerated enough electricityto meet its requirements formany years.Challenges to India’s electricity generationElectricity pricingElectricity price subsidies are widely used in India. Industrial consumersare often levied with surcharges to subsidise other consumers, particularlyagricultural users that do not pay for electricity. Most electricity soldto households is at prices below the cost of electricity generation. It isestimated that around 87 per cent of household electricity consumption issubsidised (Pargal & Banerjee 2014). Artificially low electricity prices do notsend the appropriate signals for consumers to improve energy efficiency,alter their electricity use or stimulate investment (IEA 2014b).Electricity in India is sold through a few different mechanisms, long termcontracts, short term bilateral contracts and the spot market. Distributioncompanies purchase electricity from state generation utilities on long-termcontract. These transactions account for the majority of electricity sales inIndia. The prices for these contracts are determined by regulatory agenciesand are usually at cost plus a margin. The electricity price set by regulatoryagencies in principle reflects fuel input costs. However, electricity pricingis politically sensitive and regulators are reluctant to increase prices toofrequently or by too much. As a result, distribution companies often sellelectricity at a loss which reduces the profitability of the sector (IEA 2012).Power theftPower theft is a widespread problem in India, with some utilities claimingthat up to 80 per cent of their power losses can be attributed to theft (Gupta2014). The loss of revenue from theft reduces the finances available formaintenance of existing facilities and investment in new generation capacity.Power theft is a widespreadproblem in India.There are various methods of power theft; including illegally tapping intoexisting lines. In the most populous state of Uttar Pradesh, power theft ismost prevalent through meter fraud and unmetered usage. Meter fraudINDIA’S ELECTRICITY AND COAL MARKETS35