This time of year, it isn’t unusual to see brownouts or blackouts that stem from abnormally high power demands that stress grids. What is unusual, however, is the scope of the recent back-to-back power failures in India.
The world’s largest blackout ever crippled roughly half of India for a second consecutive day today. The massive power failure spread across 22 of the country’s 28 states, an area whose population is nearly 700 million, almost 10 percent of the world’s population. Consider, for perspective, that the grid failure was larger than both the August 2003 blackout on the U.S. East Coast and the March 1999 blackout in southern Brazil.
Surprisingly, the grid failure was met with some ambivalence. That’s because an estimated 300 million Indians do not have routine access to electricity, and localized failures are commonplace. Furthermore, because local outages are so prevalent, many businesses already have and use backup generators—so for them, business continued.
Nonetheless, a government investigation of the situation has begun. A number of factors contribute to the situation.
More than half of India’s power generation is coal-driven, but Coal India struggles to keep up with growing demand as it faces delays in clearance from the government to begin mining in environmentally protected areas. Secondly, as a Businessweek article notes, India depends on the summer monsoon for much of its annual rainfall but so far, this year’s rains have been disappointing. The less-than-normal rainfall has put strains on India’s hydroelectric power supply, which accounts for 19 percent of the country’s 205-gigawatt generation capacity but has dropped nearly 20 percent in the first six months of the financial year due to the delayed monsoon rains.
More problematic is a widespread theft of electricity. The Businessweek article explains that between 30 percent to 50 percent of the electricity produced by India’s power plants gets siphoned off by people who don’t pay for it. Making matters worse, local politicians don’t necessarily want to crack down on the practice because many of their voters depend on getting electricity without having to pay for it.
There will, most likely, be consequences for manufacturing and the supply chain. India is home to a growing number of manufacturing companies—including a substantial number of well-known companies in the pharmaceutical and biotech industries.
Indeed, in a BBC News article today, Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce & Industry (FICCI), said that a shortage in power supply has resulted in industries across the country being asked to slow down their manufacturing or even shut factories for a certain number of days in a month.
It’s a serious crisis and it seems to be worsening, says Kumar.
As has been noted, the prevalence of routine power outages has forced many businesses to install their own power generation or power back-up units. That not only increases their capital costs, but also adds to their operational expenses because back-up units generate electricity using diesel fuel, which is more expensive than power generated from coal.
This has a bearing on any sector, be it manufacturing or services, says Amit Kapoor, honorary chairman of the Institute for Competitiveness, in the BBC News article.
To be sure, foreign companies and investors will be watching developments in India. If nothing else, the widespread power failure illustrates just how fragile India’s infrastructure is. It would seem that the outages will have an impact on some companies’ strategic business decisions. At the very least, it forces some thought and consideration to be given to backup power supplies and other risk mitigation tactics.