Global Players Give Thumbs Down to India’s Coal Auctions, Prefer Renewables

 India has thrown open its vast coal deposits for commercial mining. Private players can now freely sell or use coal, which will eventually dismantle the monopoly of state-owned Coal India Ltd. (CIL).

Global players, however, have given thumbs down to this move.

The decision to end government monopoly in coal comes at a time when much of the world is moving toward renewable energy, raising questions about India’s power sector policies.

“The decision to have more players is absolutely right, but it is happening with a big delay,” said Partha Bhattacharya, former chairman and managing director, of CIL, which controls more than 80 percent of coal assets in India.

“This is happening at a time when in the power sector, renewable energy is coming in a big way. This is going to taper coal demand going forward.,” he said. “We are witnessing a situation where renewable power tariffs will make fresh capacity addition in thermal power unviable. All incremental capacity should be on renewable.”

The government’s announcement in June about the auction of 41 new coal blocks for commercial mining was met with opposition from environmentalists since many of the mines are in forested areas.

The government said it would spend INR 50000 crore ($6.8 billion) on creating infrastructure for coal extraction and transportation, according to the Press Information Bureau.

Recently the government revealed the bidders for 38 coal mines put on auction. While no foreign firms participated, 15 out of the 38 mines received no bids. A total of 76 bids were received for 23 coal mines.

In contrast, In July, the Solar Energy Corp of India Ltd. auctioned 2 gigawatts (GW) of the interstate transmission system. It received an overwhelming response with over-subscription by about 2.35 GW, according to a report from JMK Research & Analytics.

Spanish, Italian, French, German and British companies bought sizable shares  while quoting aggressively low tariffs.

India’s government has set a target of installing 175 GW of renewable energy capacity by 2022. Private players see this as an opportunity for growth.

India’s share of total global primary energy demand is set to roughly double to around 11 percent by 2040, according to a report by the World Economic Forum, The country will need to double its electricity output by 2030 to meet the demand.

As a signatory to the Paris Agreement, India will need to reduce its carbon footprint by 35 percent from 2005 levels. This would require that about half the additional output come from renewable energy, which translates to adding 25 GW of renewable capacity annually until 2030, according to estimates by the World Economic Forum. It would also need funding of around $76 billion to 2022, growing to $250 billion during 2023-30, as per India’s Economic Survey 2018-19.

“Therefore, on an annualized basis, investment opportunities of over $30 billion are expected to emerge in the next a decade and beyond, about three times current levels — clearly indicating a huge and untapped investment potential,” the World Economic Forum report states.

However, analysts believe that despite very low solar power tariffs, India is far from moving to a renewable-based energy economy.

“The Indian situation is different as we need to generate affordable power,” said Bhattacharya. “We have 250 thousand MW of thermal coal power, and if we want to replace that with renewables, we have to create the capacity of 750,000 MW. The Plant Load Factor (PLF) in renewable is one-third of thermal. One cannot do that with coal-based power plants in one go, but this has to be done in a calibrated way. The incremental capacity should be created in renewables, but existing power plants must perform better.

“It is not before 2050 or 2055 that India will bid adieu to coal dependency,” said Bhattacharya.

PLF is the ratio of average power generated by the plant to the maximum power that could have been generated.

India has the world’s fourth-largest coal reserve and is the second-largest producer of coal. More than 60 percent of the country’s installed power capacity is from thermal power plants. The share of renewable energy is close to 23 percent, according to government data.

Between the first half of 2018-19 and the same period in 2019-20 alone, India’s installed thermal power capacity increased from 159,623 MW to 195,926 MW, according to a report from the  Central Electricity Authority.

India imported about 249 million tonnes of coal in 2019-20, according to provisional data available from CIL.

“Commercial coal mine opening is very positive for the sector as there was a lot of black marketing in the sector. Also, there is no point in India being abundant in coal and still importing coal,” said Bhavesh Chauhan, an analyst at IDBI Capital Markets & Securities.

Coal-based power plants continue to be a major source of an environmental hazard. The increasing dependence on coal also comes with the challenge of disposing of fly ash, a toxic by-product of coal in thermal power plants.

In 2018-19, India generated 217 million tons of fly ash. Of this, 78 percent was used, but nearly 48 million MT had to be dumped last year, the Central Electricity Authority report states.

In December 2015, the Ministry of Environment, Forest and Climate Change set up stringent emission norms for coal-based power plants, to be met by 2022. A new report by the Centre for Science and Environment predicts that nearly 70 percent of the plants will not meet the emission standards.

“Missed deadline for the implementation of the emission standards of coal power plants every year causes irreparable damage to the health of the children,” said Shweta Narayan, coordinator of the Healthy Energy Initiative, a global collaboration of health professionals, organizations and researchers for clean energy.

At the same time, India’s self-reliance on solar energy is challenged by factors such as dependence upon China and the financial condition of state distribution utilities.

Chinese firms supply about 80 percent of solar cells and modules to India, with the country importing $1,179.89 million worth between April and December 2019, R.K. Singh, the minister for renewable energy, said in parliament recently.

In July 2018, the government imposed a 25 percent safeguard duty on the import of solar cells from China, Malaysia and developed countries, but India’s dependence on solar power equipment did not decline.

As of April 30, 2020, India’s installed renewable energy capacity stood at 87.26 GW, of which solar and wind comprised 34.81 GW and 37.74 GW, respectively, according to data from IBEF, India Brand Equity Foundation.

(Edited by Siddharthya Roy and Judy Isacoff.)