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What has led to the unprecedented coal crisis?

The year 2021 saw many countries facing a shortage in the supply of coal, natural gas, and other energy sources. India and China are already facing a shortage in the supply of coal. Power plants in India are operating with lower coal stocks, while several factories have already been closed in China. Many fuel pumps are empty in Britain, and the price of natural gas has increased multiple times in Europe. The rising prices of energy sources are affecting the economic condition since many countries cannot tolerate high-energy costs. Analysts say that the cause behind the global energy crisis is mainly due to the rapid post-pandemic recovery. In 2020, the economic activities came to a halt due to the nationwide lockdown, leading to a decrease in the demand for energy sources. The world's biggest energy producers started producing low coal and oil. The following year saw an explicit increase in the demand and consumption of electricity when the economy was rebounding simultaneously. Most countries eventually removed the lockdown after the vaccines came. Many factories reopened, air travel resumed, and straight away the demand for energy became inadequate while the supply pace remained at 2020 levels. Henceforth, coal prices have risen tremendously due to the supply shortage and increase in demand. Electricity generated from the imported coal-based power plants decreased, thus increasing the dependency on domestic coal where adequate coal stocks are not available. Another reason for the crisis is the difficult transition to green energy, and as the world leaders didn't plan to invest properly in green energy, and thus they are hustling to reduce emissions. The Chinese government has started to cut off coal supplies as it struggles to meet its climate goals. The difficult transition from fossil fuels to green energy is common across the globe.

Can this lead to power outage?

Blackouts aren't unheard of but, the increased number of blackouts this year is a matter of concern. The coal inventory position is unlikely to improve within a few days, which shows the possibility of more power outages that could slow down the economic recovery and cripple social infrastructure. Recently, the effects of power outages are seen in various countries around the world. Although India has the fourth-largest coal reserves in the world, it is the world's second-largest importer of coal because it heavily relies on thermal power plants to meet its energy demands. The blackout hit various states of India like Kerala and Rajasthan. Other coal consumers like aluminum smelters and steel mills are among the businesses hardest hit by the outage, either reducing their output or paying more for the fuel. In China, many cities went dark because traffic lights and street lamps were kept off. Sales of candles increased as millions of homes and businesses went without power. Reportedly, 20 people were infected with carbon monoxide because their factory ventilators shut off during a blackout in the northeastern province of Liaoning. The ongoing energy crisis occurred simultaneously with the Grid's annual assessment of Britain's strength to reduce electricity, with margins dropping to their lowest level in five years. The expected amount of reserve electricity supply was 6.6% of demand but has fallen by 2.4% said the Grid’s electricity system operator (ESO). Further, consumers are worried about high heating costs this winter, as coal prices are rising the power companies will pass on the cost to consumers.

Who will benefit from coal shortage?

China is the largest coal exporter in the world and faced wrath due to the extensive supply of coal at a cheap price, especially due to the enormous coal shortage during the lockdown. As a result, China decided to import coal from countries like Russia, Indonesia, Kazakhstan, and many more. Russia has 176,771 million tons of coal, making it the second-largest coal reserves in the world. Hence, China asked Russia to import more coal, which is about a 9.8% increment from last year. In the United Kingdom, the regulatory body introduced a price cap in response to the rising coal prices. This led to losses for many suppliers and hence they started looking for other alternatives. The suppliers consulted with various nations and thought of making a deal with the companies outside Britain. Although many feared that Britain could suffer a blackout due to the crisis, it somehow managed to bail out of that problem. Meanwhile, companies that produce oil and gas continue benefiting as the demand is rising. Companies like Reliance Industries, Petronas Gas Berhad, Index Corporation, etc., made profits in this crisis like never before. Many economists feared monopoly given the absence of other players who could help to keep the prices in check, but it seems most of the countries are seeing the same trend. In India, there were warnings about coal shortages given by the experts. But amidst that, some believe that Tata Power and Adani Power could emerge as potential winners. This prediction was not a fluke, as the stock markets were clearly in favor of these companies. This again followed a similar global trend where private companies benefited the most from this crisis. Meanwhile, if NTPC Limited doesn't allow the price increase, it could run into a shortage, which is not a good sign for them.

What vulnerabilities does coal crisis expose?

Energy is vital for all resources. Thus, the energy crisis directly influences economic sectors such as the agriculture sector, industrial sector, unemployment, poverty, lower GDP, and higher inflation. Furthermore, it threatens the financial downturns that affect economic recovery. However, it brings out the opportunity to develop renewable energies. The crisis suggests the transition to renewables will be more complicated than expected. Over the next few years, world leaders will have to reconsider their energy mix and begin considering large investments in energy storage from solar and wind. Clean baseload power is essential for avoiding future energy problems. Nuclear power is a low-emission, baseload energy source with a proven track record. Another reliable baseload energy source is geothermal electricity, which is also renewable. Eventually, improved planning and investments in nuclear and geothermal power, as well as many other clean power sources, can lessen the potential of future price shocks. As global energy demand rises, the transition must prioritise supply stability. This energy crisis is a warning sign of what is to come if we do not adjust our energy transition regulations. The shift to renewable energies is not the only cause of the current energy crisis, but it is a significant contributor and, more importantly, one that we can address before power outages become commonplace. Our global energy demands will only increase, so any transition that results in a net loss of power generation will worsen situations. Another possible solution would be to break free from the commodity price cycle, increase clean investment. The human toll will be devastating, particularly in the countries severely hit by COVID-19. Some will argue that increasing gas output is the solution to the situation, but blaming renewable energy and climate action will be misdirected. Instead, the crisis highlights the need to invest in clean energy resources that is less vulnerable to volatile fuel supply chain.

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