King coal holds strong in India’s energy mix

Despite the increasing focus on renewable energy sources, coal appears likely to remain dominant in most of Asia’s energy sector for some time. This trend is driven by a combination of factors. Global events such as China’s energy concerns, the war in Ukraine, and slow progress in transitioning developing countries to cleaner fuels are all contributing to a rise in coal demand.

This trend is particularly evident in India. The International Energy Agency predicts that India’s coal production will surpass 1 billion tons for the first time this year. This rise in Indian consumption, along with China’s continued heavy reliance on coal, the Internationally Energy Agency (IEA) projects both countries to consume 70% of global coal by 2026. Back in 2000, this was about 35%.

Let’s understand this from India’s perspective.

Indian power sector conundrum

Coal’s dominance in India’s energy mix is undeniable. With nearly half of India’s installed power capacity in coal, (coal) power plants generate over 90% of the electricity. Several factors underpin coal’s continued dominance. India’s estimated coal reserves of 361 billion tonnes are the fourth largest in the world and enough to last a few more decades, thereby offering a reliable domestic source of fuel. This, combined with a booming economy and surging electricity needs, makes coal a relevant option for years to come.

Further, as per Central Electricity Authority 29 GW of thermal power capacity is under various stages of construction and is expected to come on stream by May 2027. The Ministry of Power has set an electricity generation target of 1,750bu (billion units) in FY24 (growth of 7.7% YoY), of which the share of thermal power is expected to be over 75{%. As per Motilal Oswal’s February report India’s power demand, which reached its peak of 243 GW in Sep-Oct 2023, is expected to cross 385 GW by FY32.

Renewable energy is yet to rise. It is evident India needs more coal-fired power plants to keep up with rising electricity demand and ensure a reliable supply. The country’s latest National Electricity Plan anticipates between 19 GW and 27 GW of additional coal capacity up to 2027, depending on the scenario, despite about twice the capacity already being in the project pipeline. However, the environmental consequences of coal combustion are a cause for serious concern. India, a signatory to international climate agreements, has pledged to achieve net-zero emissions by 2070. To meet this ambitious target, a significant reduction in coal dependence is essential.

Recognising this, the government has set a goal of achieving 50% of its power generation from renewable sources such as solar, hydro and wind by 2030. These are cleaner and more sustainable alternatives. Their potential is undeniable, with installed capacity witnessing significant growth in recent years. However, renewables currently contribute a meagre 10% to India’s total power generation, despite having 42% of installed capacity. This is because the market is riddled with challenges. According to Motilal Oswal report, this includes low plant load factor (indicates that these are intermittent sources of power and plants may not be operating at optimal capacity and don’t have adequate power storage capacity), concentration in certain geographical regions of India, multiple delays in execution, higher finance costs, inconsistent power generation, and many more. Thus, considering the various shortcomings of renewable energy in India, the dependence on thermal power plants is expected to increase in the coming years.

But coal is dirty! Despite possessing vast domestic coal reserves, India relies on imports for nearly a quarter of its total coal needs. This dependence is on account of two key factors: the quality of domestic coal and connectivity issues. As per reports, Indian coal often has a high ash content and a lower calorific value, making it less efficient for power generation and industrial use. Additionally, logistical challenges in transporting coal from extraction sites to points of consumption necessitate imports in some regions.

Recognising these limitations, the Indian government is actively pursuing strategies to reduce coal imports and make cleaner use of its domestic reserves. For instance, the coal gasification strategy. This process transforms coal into a cleaner-burning synthetic gas (syngas). Syngas offers a versatile fuel source for electricity generation, ammonia production, and the creation of fertilizers and petrochemicals. A National Coal Gasification Mission aims for a target of 100 million tonnes of gasified coal by 2030.

Similarly, increasing the usage of underground coal mining is another important step. Currently, nearly 90% of India’s coal production comes from open-cast mines, which are environmentally disruptive due to deforestation and displacement of communities.

The government is also promoting coal beneficiation through the establishment of coal washeries.

Additionally, India’s Coal Bed Methane (CBM) policy aims to harness this unconventional energy source. Production has shown promising growth, reaching 486.7 million metric standard cubic meters (MMSCM) between April and December 2023, with projections indicating further increase by the end of FY24.

While these initiatives hold promise for cleaner coal utilisation and reduced import dependence, their long-term impact on India’s carbon emissions remains to be seen.

Coal has the upper hand. India’s surging energy demands, coupled with the slow growth of renewable energy sources, necessitate continued reliance on coal in the near future. Coal India, catering to 80% of India’s coal needs, is strategically increasing production to meet this demand. Thermal power plants, fueled by coal, will likely remain a significant source of power for some time, driving up coal consumption. As a result, coal will retain a critical role in India’s energy mix for the foreseeable future.

Sources and references:

Motilal Oswal Feb report on Coal India

https://iea.blob.core.windows.net/assets/a72a7ffa-c5f2-4ed8-a2bf-eb035931d95c/Coal_2023.pdf

https://coal.gov.in/en/major-statistics/production-and-supplies

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1909977

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1988663#:~:text=Government%20of%20India%20had%20formulated,of%20CBM%20in%20the%20country.

https://www.iea.org/commentaries/india-s-clean-energy-transition-is-rapidly-underway-benefiting-the-entire-world

https://energy.economictimes.indiatimes.com/news/coal/indias-cbm-production-hits-486-7-mmscm-natural-gas-production-edges-higher/107276055

https://www.ndrdgh.gov.in/NDR/?page_id=11598#:~:text=These%20CBM%20blocks%20are%20in,the%20current%20CBM%20producing%20blocks.

https://powermin.gov.in/en/content/power-sector-glance-all-india

https://cea.nic.in/dashboard/?lang=en

https://coal.gov.in/en/major-statistics/production-and-supplies#:~:text=The%20all%20India%20Production%20of%20coal%20during%202022%2D23%20was,a%20positive%20growth%20of%204.4%25.