Why coal will continue to burn in India

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Rio Tinto's coal operations in Australia. Copyright © 2014 Rio Tinto (Picture for illustration purposes only)

While petrol and diesel prices impact consumers directly, India is plagued by concerns around another fossil fuel, coal. However, coal helps meet around 45% of India’s energy needs. Power sector is the single major consumer of coal, and 79% of our electricity generation is accounted for by fossil fuels, primarily coal. The intermittent and unreliable nature of renewable power makes it a complementary, and not a primary source of electricity.

The government’s regulatory push towards renewable energy is loud and clear in the form of targeted subsidies and incentive mechanisms in place to promote renewables. The government targets to increase the renewable capacity to 175GW in FY22 and 275GW in FY27 from the current 70GW. In terms of electricity generation, this translates into a target of increasing share of renewables in power generation from the current 8%, to 19% in FY22 and 23% in FY27.

Even though coal minister Piyush Goyal claims no shortage of coal in the country, the Central Electricity Authority (CEA) reports that seven thermal power plants (9,202MW of generation capacity) had either critical or supercritical coal stocks as on January 21, 2019. Despite India being the fourth-largest producer of coal in the world, the country has been importing almost 200 million tonnes of coal every year since FY15, of which non-coking coal imports are almost 80%. Non-coking coal imports in the last five fiscal years averaged 154.6 million tonnes, as compared to 62.3 million tonnes in the preceding five years. Non-coking coal is used primarily for power generation, whereas coking coal is primarily used in the production of steel.

The shortage of coal has also hit the industry hard. Industry accounts for nearly 40% of the power demand in India. Non-power sector industries (such as steel, cement, aluminium) usually set up captive power plants (CPPs) to secure steady and uninterrupted power that is not available from the grid, and 60% of all CPPs in India currently are coal-based and they fall under the non-power sector. Coal supply to CPPs has not kept pace with the demand since the last three fiscal years, and this fiscal is no better.

Last month, CIL decided to allocate 25% of its planned production to the non-power sector. Assuming CIL’s production at 680 million tonnes, the non-power sector would get around 170 million tonnes of coal. This is insufficient to meet the demand by the non-power sector for domestic coal, which is around 223 million tonnes, as mentioned by the Coal Controller. CIL has been missing its production target year after year.

News reports suggest that CEA has identified new potential sites for thermal power plants. CEA officials have mentioned that new coal-based generation capacity is essential for increased base-load demand and grid stabilisation. The push towards electrification cannot be achieved without coal. Additionally, industrial demand for power and coal will also increase as the economic activity grows.

Despite the emphasis on renewables, coal remains critical for electricity generation. There is a dire need for the various government departments—including CIL and Indian Railways—to address the issue of coal availability in the country. For now, coal will need to keep burning.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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