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The beginning of the end of coal in India

Coal has been the dominant energy form in India throughout history.Credit: https://indianindustryplus.com/2019/12/05/government-mops-up-rs-203221-crore-revenue-from-coal-india-limited-since-fy-2013-14-shri-pralhad-joshi/

Since the Indian government enforced a COVID-19 educed lockdown, in late March, there has been a disruption in the energy consumption pattern in India. Throughout its history, India has relied heavily on coal for its energy demand, even though its share of generation kept decreasing. However, lockdown has caused the industry to plunge rapidly. While the energy demand dropped, both commercially and industrially, the coal generation took 100 percent of the brunt by lowering their plant base load while the share of RES rose to historic highs.

The problems of Indian coal sector

The woes of the Indian coal sector aren’t new. The coal sector has been facing cash flow issues over the past few years, with most plants running well under capacity. Reduction in the baseload of coal plants reduced the profitability of plants. Coal India Limited (CIL), which produces 84 percent of India’s thermal coal, has not kept up with the growing demand. Constant efforts to extract cash from CIL have hampered the company, making it difficult to fund further diversification, promote research and development, or reinvest in new operations. 

In 2014, the Indian Supreme Court cancelled all but 4 of the 218 coal block allocations to public and private enterprises because of alleged misconduct. Bringing auctioned mines into production is a three to five-year process, and it is unlikely that the current commercial coal mining regime will ever rival CIL’s established production base. Despite the repeated announcements of introducing competition and revisions in stimulus packages, new coal mine auctions are unlikely to attract new domestic or international interest, except for the domestic players already in the market. Unfortunately, COVID-19 only worsens the matter.

In 2015, the government made coal washing mandatory for supply to all thermal units beyond 500 km from the coal mine. This was done in line with the country’s stand in climate change negotiations–not to reduce coal consumption, but rather focus on emission control. Coal washing reduces the ash content and improves the heat value and combustion efficiency, reducing carbon dioxide emissions. The decision was scrapped this year after just five years in place. The Ministry of Environment, Forests and Climate Change is of the view that the requirement of maintaining an average ash content of 34 percent prompts industries to import, resulting in an outflow of foreign exchange. According to industry calculations, washing improves the quality of coal by reducing ash content to 33-34 percent from the earlier 40-45 in average Indian coal. The ministry instead directed thermal power plants to install the technology for handling ash content, putting more financial burden on coal plants.

Economics

The economics are not favorable for the sector either. The cost of adding solar electricity stands at about 2.5 rupees ($.034) per unit generated, compared with around 4.5 ($.061) rupees for new coal capacity, according to analysts. Even coupled with more expensive batteries to store electricity, solar energy was auctioned at a cheaper price than new coal earlier this year. As per a new analysis by Climate Risk Horizon, shutting down 20-year or older coal-fired power projects and scrapping under-construction thermal power projects could save the government, power distribution utilities, and consumers almost ₹1.1 trillion ($15 billion) by savings on installation of mandatory pollution control equipment on older plants and moving to cheaper sources of electricity.

The weakening position of the sector is clear as renewable energy installs nearly doubled traditional thermal power capacity installs during 2019-20. India will hit peak coal demand for its power sector within this decade, according to a 2017 analysis by the Institute for Energy Economics and Financial Analysis. There’s nothing to contradict the analysis yet. With companies committing to clean energy, investments in the lucrative renewable sector sound like the only right choice ahead.