Don’t bank on coal exports to India

Future of electricity generation focused on renewables

EAS Sarma

Environment & energy, Trade and industry | Australia, Asia, South Asia

27 February 2017

Coal imports are fated to be cast aside in India’s electricity generation sector as demand-side efficiency improvements in the electricity sector, renewables and domestic production are forecast to meet demand, EAS Sarma writes.

India is presently going through a defining shift in its energy mix from fossil fuels to renewable resources. In the coming decades, it is highly unlikely that the country will be a large consumer of coal for electricity generation or a major coal importer.

The electricity industry is the largest consumer of non-coking coal in India. Burning coal in the power generation plants is a highly polluting activity. The fly ash that is released from it contains toxic pollutants such as radioactive isotopes and heavy metals including mercury that contaminate the air and the water bodies around the power plants. Mercury contamination has adversely impacted the health of the people and traces of the contaminants have been found in the food chain. The social costs of coal-based electricity generation far outweigh the social benefits, leading to widespread public opposition to power plants using coal.

Keeping this in view and the global warming consequences of coal, in its Intended Nationally Determined Contributions submission to the United Nations Framework Convention on Climate Change, India has rightly indicated its intention to reduce the emissions intensity of its GDP significantly by realising about 175,000MW (40 per cent of cumulative electricity generation capacity) from non-fossil energy resources by 2022. This implies that the share of coal in total electricity generation in India will decline in the coming decades, with an increasing emphasis on efficiency improvements in the electricity supply chain and shifting progressively towards decentralised renewable energy systems.

As a result of intense competition, the prices of renewables are falling steeply all over the world. It is therefore possible, within a foreseeable future, to expect roof-top solar and other decentralised electricity systems to outpace conventional electricity. For example, solar photovoltaic prices have declined by 62 per cent since 2009. The market expectations this year have the prices for generating solar power falling below Rs 45 (~ 6 US cents) per kilowatt hour.

More on this: India’s changing energy policy

There are other factors that hasten the shift from coal to other sources of electricity generation.

The Indian electricity supply system is overly dependent on coal. At present, the total electricity generation capacity is 314,642MW6, out of which the thermal (coal, gas, diesel, nuclear) capacity is 220,435MW (70 per cent).

The thermal plants predominantly cater to the steady component of the electricity demand and the peak/off-peak pattern of the demand in the country is such that there is a significant surplus of thermal capacity which has forced many thermal plants to back down during the off-peak hours, eroding their financial viability.

Indirectly, this has imposed a heavy cost burden on the electricity utilities and eventually on the electricity consumers. Any further addition to the thermal capacity, whether it is coal-based or otherwise, will worsen the situation.

This assumes importance in view of the fact that around 145 million households have no access to electricity and the main barrier to providing electricity to the low-income households is the high cost of electricity, not so much the shortfall in generation capacity. In order to minimise energy deprivation for such households, the energy planners are likely to adopt changes in the energy mix that minimise the unit energy cost. From this point of view also, India cannot afford to enlarge the share of coal in electricity generation. More so, in the case of imported coal, the price of which is in foreign currency, leading to price volatility.

The National Planning Commission’s Integrated Energy Policy study (2006) has projected an efficiency-driven energy system weighted in favour of renewables over a time-frame extending up to 2031-32, which envisages a total electricity generation capacity of 700,700MW by 2031-32, out of which coal-based electricity generation would be 269,997MW.

This requires 1,540 tonnes of domestic coal. The existing coal-based capacity in the country is already 188,487MW and the residual requirement of capacity, based largely on indigenous coal, is already in the pipeline of statutory approvals. Domestic coal production at present is 600 tonnes and it has been increasing at an annual rate of 9 per cent.

India’s domestic coal companies are gearing up to step up coal production and a large number of coal blocks have been auctioned to private companies for captive use. With these measures, domestic coal production will reach a level of 1 billion tonnes by 2019-20 and the gap between the demand for coal and its supply will gradually decline during the next few years. During the current year, coal imports may be less than 160 million tonnes. Considering that India is already heavily dependent on oil imports from the Middle East, from an energy security point of view, the Indian planners are anxious that India should not be dependent on coal imports.

Against this background, it is doubtful whether coal mining projects taken up overseas (e.g. Australia) for exporting coal to India for electricity generation will stand the test of either economic or financial prudence.

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