Will coal remain the mainstay of India's energy mix for long? Given the unprecedented push around renewables these days, the question is pertinent, and the time is apt too to get some facts about it.
At UN Climate Conference in Paris last year, India – with its resolute stand on the use of coal – was seen as the major holdout to any meaningful dialogue on climate change. The country had then categorically stated it was at least two decades away from reducing its coal use.
Conveying it powerfully, and also speaking for all economically underdeveloped countries, India's powerful Prime Minister Narendra Modi said there that the consequences of the industrial age powered by the fossil fuel were evident, especially on the lives of the poor.
"World's billions are at the bottom of the ladder and are seeking a place to grow. India needs to grow as 300 million people are still without access to energy. We are determined to do so," PM Modi told the climate conference.
Coal, Power and Renewable Energy Minister of the country, Piyush Goyal, went one bit ahead. He said the country would not be apologetic about having to use coal in future while all developments in the US and the West for over 150 years were on the back of the coal itself.
Mr Goyal was right that a sudden shift to renewable energy mode was not a viable option for India without base load power, currently being provided by the fossil fuel. And, fulfilling his government's electoral promise of bringing quality electricity to 28 million more homes by 2022 still requires capacity addition of many more thousand megawatts too.
Coal has traditionally been the most important fuel in India. It officially meets about 60% the total power requirements of the country. The country, currently, has a total of 327GW generation capacity. Of this about 210GW is thermal capacity, and of the total thermal capacity around 190GW is coal-based capacity. Interestingly, maximum amount of development too is happening in this area.
Analysts have rightly calculated that even when the share of non-fossil fuel power rises to 40% by 2030, as proposed currently, that will mean only a 4% reduction in the share of coal in India's energy mix (i.e. from the current 61% to 57% level), given another 200 GW of coal-fired capacity is in the pipeline to be commissioned over another ten years.
While the world in this June saw the US withdrawing from the Paris accord saying it wanted to renegotiate the deal in favour of its business and workers, India – described as a 'challenge' to the climate talk by the previous US State Secretary John Kerry – was seen moving ahead with a firm sense of commitment and responsibility.
For India, the demarcation was clear. Standing strongly for the case of coal didn't at all mean undermining the climate pact to which about 200 sovereign states are signatories. The country has, thus, like China and European Union, reassured the world of its obligations to the pact.
As part of a long-term strategy the government, in fact, has raised the target capacity addition of solar-based power generation to 100GW, while generation from other renewable resources including wind, biomass and hydro was envisaged at 75GW. These targets, proposed to be attained by 2022, entail an investment of close to US$100 billion.
A government release earlier said that in the solar sector alone the target would principally comprise of 40GW rooftop and 60GW through large and medium-scale grid-connected power projects. Accordingly, the programme would make India one of the largest green energy producers surpassing several advanced countries.
The government also expects green companies from China, Japan, USA and Germany will take part in the investment programme that will help India's current solar generation of about 4,000 MW transition to 100 GW over a period of next five years.
However, rosy pictures cease to be rosy ones if the ground economics doesn't support the idea. And the government's August released mid-year Economic Survey itself is here with a word of caution on the programme.
Although the survey notes that given the priority of India is to provide 100% energy access to its population and bridge the 'development deficit gap' by tapping all cleaner energy sources, it demands a calibrated approach so far as investments in the clean energy areas are concerned.
"While investments in renewable energy is crucial for India to meet its climate change goals, such investments be made at a calibrated pace looking into the total cost accrued to the society," the survey notes. It adds further that the social cost of renewable at Rs 11,000 per MWh, as of now, is around three times that of coal.
The survey fears that a sudden shift to renewables is with its pitfalls. It is likely to render a part of the assets in conventional energy generation plants idle or result in them being used at a much lower level than their maximum technically feasible level given their capacities.
The investments in these plants being sunk, it will no longer be possible to recover any returns from them although their useful life will be far from over. These stranded assets will eventually be taken as the lost revenues due to the suboptimal utilization of coal-based power generation assets.
Chief Economic Advisor to the government, Arvind Subramanian, thought the same.
"Rapid changes in technology are promising to help realize the promise of renewables, which is an eminently desirable development. At the same time, these changes need to be seen in the context of India's current economic situation and its enormous endowments of coal, which is still a very cheap way of providing energy to hundreds of millions who are still energy-deprived," Subramanian told a conference organised by The Energy and Resources Institute in New Delhi this week.
The non-performing asset (NPA or bad loan) ratio pertaining to the overall electricity generation, currently, is around 5.9% of the total advances of US$74 billion to the sector.
As a logical corollary to this, various reports suggest thermal generation capacity totalling around 15,000MW is currently idling state because of little interest on the part of the debt-ridden distribution companies to sign power purchase agreements with generators. It is estimated coal-based generation capacity of over US$13.5 billion in investment is languishing in that way.
Although the warning of the survey is subtle, it speaks clearly of the possibility of a quagmire enveloping India's power sector in coming years. Put it differently, the government will certainly move cautiously, and the writing on the wall is clearer too: coal has many more years of assured stay before its glory finally wanes.
