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India's energy crunch: States witness power shortage; Power Ministry to reduce cost of electricity

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India is one of the largest consumers of coal in the world and is undergoing some serious shortages of the said commodity. According to a report, several north Indian states have suffered electricity cuts and may continue to face shortages because of the coal crunch. Stay tuned as we bring the clear picture and latest updates on everything related to power crunch.

India's energy crunch: States witness power shortage; Power Ministry to reduce cost of electricity

India has released a new framework that is expected to bring down the cost of electricity while helping the discoms planning to purchase power in advance. Overall, the move is expected to benefit power generating companies and bring down some burden of electricity cost on the consumers.

India is one of the largest consumers of coal in the world and is undergoing some serious shortages of the said commodity.  China is going through a similar crisis having short factories and schools to manage the shortage.

According to a Reuters report, over half of India's 135 coal-powered power plants are left with less than three days of stock, contradicting the government's assurances that there is enough power.

An analysis of data from regulated POSOCO showed, in the first seven days of October India's power supply deficit stood at 11.2 percent of the country's total shortages throughout the year, a Reuters report said.

The report added India's power shortfall in the first week of October was 21 times more than the deficit in the same period in 2020. And, over four times more than the deficit recorded in 2019. Before now, power shortages have been largely restricted to Jammu and Kashmir.

A. News roundup

Indian states suffer power cuts as coal shortage worsens

India's north Indian states have suffered electricity cuts and may continue to face shortages because of a lack of coal, Reuters reported. States of Jharkhand, Bihar, and Rajasthan were among the worst affected, the report mentioned. The industrial states like Gujarat and Haryana have also been through some shortages this week as did some parts of Uttar Pradesh, the state expecting elections soon.

Coal shortage: Government gets into action

On October 6, India witnessed a 7,800-megawatt peak shortage of electricity, on a day when 3,800 million units the demand was met by the government.  At the same time, Coal India's auction prices have skyrocketed and non-regulated sectors like steel, cement, and aluminium are bearing the brunt. Here's how the government is getting into action.
Power Ministry to decrease electricity prices
The Power Ministry on Friday released a framework for the implementation of market-based economic despatch (MBED) to enhance competition in the sector and lower electricity prices. This move will allow state discoms in India to plan power purchases from the market ahead of time at the power exchange. This way they will also get the chance to meet India's electricity demand from the cheapest sources.
Fuel prices continue to rise
The oil marketing companies in India hiked the prices of diesel and petrol for the fourth consecutive day on Friday. The price of petrol was hiked by 29 to 30 paise a litre and diesel was hiked by 35 to 37 paise.
B. Global Snapshot

China orders coal mines to increase production

China, suffering from an acute shortage of energy, has ordered its coal mines to ramp up production to ease the crisis and balance power demand with its efforts to tackle the climate crisis.  Inner Mongolia, which is China's second-largest coal-producing province, has ordered its 72 mines to boost production by nearly 100 million metric tons. The order was to take effect immediately, a CNN report said.

Natural gas shortage sets off scramble
The alarmingly low stock of natural gas has sent the world in a scramble as tight supplies from Russia and strong demand from China have made European economies vulnerable. Even in the United States, which is the world's largest producer of natural gas, the bidding war has dragged the prices to their highest level in over a decade.  It has set the stage for an expensive winter, WSJ reported.

C. Market snapshot

Norbert Rücker of Julius Baer said the risks in natural gas markets are disproportionately priced. "The turmoil on natural gas markets raises questions. Indeed, the higher prices send a correct message to ration demand and raise supply, but we cannot ignore that the ferocious dynamics likely include a fair share of sentiment excesses. Indeed, things could get worse with a cold winter, but things could also improve with a mild winter. We consider the risks to be disproportionally priced," he said in a note.

Coal stations already starving for coal got another shock yesterday when the capesize index, the main dry bulk sea freight index of the Baltic Exchange surged to 13-year highs. This rally will make the shipping rates of coal costlier.  According to a BusinessLine report,  the trend is expected to continue for some time.  The index rose nearly 5 percent to the highest levels last seen when Lehman Brothers collapsed in 2008.
Why power exchange IEX surged in trade
IEX share price surged as power exchanges look set to benefit from a new policy regime. The government is looking to implement the first phase of market-based economic dispatch (MBED) around April of 2022.
One of the key measures as far as this aspect is concerned is that it is a short-term power trading mechanism in which the generators with the lowest costs will be able to supply power first.
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