It has been a few months since India opened up its coal industry to the private sector, and after assurances by the government of the creation of ‘lakhs of jobs’ and revenue for states, the move has seen takers such as Adani and Jindal Steel, but not on a scale that was expected. Foreign firms, especially, have largely shunned the auctions and only 23 of the 38 coal blocks have received bids. In a post-Covid era, where calls for green recovery have become louder than ever, this push for coal in India has raised doubts about how smooth the clean energy transition will be in India.
For the past five decades, coal production in India has largely been restricted to state-run Coal India Ltd so the opening up of the industry to private companies should have been a boost for the now controversial sector. “This auction has come 15 years too late,” says Partha S Bhattacharyya, former chairman, Coal India. “Internationally, financing for thermal coal is out. So relying on foreign companies to come to India is out of the question. You have to rely only on domestic players mostly.”
But even domestic players come with their own set of caveats, says Bhattacharyya. “They are unlikely to go for unexplored or under-explored coal blocks, which could be why 15 of the blocks that are up for auction didn’t receive any attention. But the auction might work in another three years.”
If coal is losing steam internationally, a domestic transition is bound to occur. Major domestic players such as Tata Power and JSW and states such as Gujarat and Maharashtra have already taken the first steps by announcing they don’t want to expand further into coal. India has also set itself a renewable energy target of 450GW by 2030, which is massive compared to other countries. “The financial markets are also driving the shift home,” says Tim Buckley, director of Energy Finance Studies, Australia/South Asia, IEEFA. “We’ve seen Azure Power up 100% and Adani Green up by 300%. As against that, Coal India is down 50%. The markets are looking forward and assessing who is going to win this race, which will eventually be renewables.”
The falling costs of renewable energy is also making coal look increasingly non-viable economically. “The GST compensation cess on coal and the capital subsidies available for renewable power has created a situation where new coal-based capacity is unlikely to deliver power any cheaper than renewables. Hence, new capacity of coal-based power beyond those in the pipeline is unlikely to come. The relatively high railway freight on coal further dampens such possibilities,” says Bhattacharyya.
Even if additional coal capacity is ruled out, what role do functioning coal plants play in the transition? According to Bhattacharyya, the Plant Load Factor (PLF) of most coal plants has fallen to around 55% in the past few years. But renewables may not be the only reason for this drop. “There was a huge increase in coal-based capacity between 2011 and 2016 — at a CAGR of 14.5% — while demand grew only 6.5%-7% in that period. So that is the reason why coal PLFs have fallen. It is not RE per se,” says Rahul Tongia, senior fellow, Centre for Social and Economic Progress (CSEP).
According to Tongia, while renewable power is definitely growing and catching up to coal, we are still a while away before things really start to turn. “Battery technology for renewable energy is improving. But it is nowhere near there yet,” says Tongia. This means India still has to rely on coal to meet its energy demand. “We need to find instruments that help us clean up our coal instead of just wishing it away. This includes the financing for cleaning up of thermal power plants instead of delaying it.”
Finishing building of coal plants that are already under construction is another option India should have, according to Tongia. “Brand new coal plants are very efficient, which means they are cleaner than older plants. But their PLFs are low. These are structural distortions in the system that need to be solved.” Coal is not going away anytime soon in India, he says. “Let its growth rate plateau first before you can talk about getting rid of coal. But the coal should be as clean as possible.”
Cleaning up the coal plants has been on the agenda for a while now. The introduction of Flue-Gas Desulphurisation (FGD) technology was a step in that direction, but coal producers have largely been averse to installing it and have asked for one too many deadline extensions. “In the future, power producers will have to install some of these features looking at the stance of the regulators and the government, and the fact that environmental norms are going to get increasingly tough. Such technology is going to become mainstream and we don’t see any way out,” says Rahul Prithiani, director, CRISIL Research.