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Cross currents hit India Government’s grand coal expansion plans

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IndiaCoalDrought

The Indian Government’s plan to dramatically expand coal power production is being buffeted by growing concern about worsening air quality, sluggish power demand, one-third of existing coal plants sitting idle and massive coal stockpiles at power plants and mines.

A study by Tsinghua University in China and the US-headquartered Health Effects Institute (HEI), which was released last week, estimated coal use in China caused 366,000 premature deaths in 2013.

While the study authors concluded China would need to pursue “even more aggressive strategies” to curb the use of coal in order to reduce the staggering health burden by 2030, HEI’s President, Dan Greenbaum, bluntly stated “India’s situation is getting worse at a much faster speed than China.”

“It is definitely the case because India has not taken as much action on air pollution,” he said.

While the Modi Government has repeatedly promoted the goal of tripling domestic coal production by 2020 to fuel a dramatic increase in coal power generation, the goal looks increasingly fanciful.

Currently about one-third of India’s 211 gigawatts of installed thermal power capacity – predominantly coal plants but including some gas units as well – is lying idle. (For the sake of international comparisons, the entire coal plant capacity of Australia is about 27 GW, while the US has just over 300 GW and Germany 54 GW.)

The reasons for India’s vast amount of idle capacity are varied.

Some plants have long been shut because of a lack of cooling water. Others have been shut because of technical problems requiring maintenance or idled because they are uneconomic. In other cases some plants have coal supply agreements but not power purchase agreements while other plants have the opposite problem. Other plants which have been built have neither fuel supply agreements nor power purchase agreements.

Compounding the thermal power generators’ problems has been sluggish power demand and debt-laden distribution utilities (‘discoms’) preferring to buy limited power because of their dire financial circumstances. (A recent government-backed restructuring of the discoms’ finance has had little effect to date.)

After two years of brutal drought conditions, reasonable monsoonal rains have boosted hydro generation which has further undermined high-cost thermal power generation.

“Falling capacity utilisation translates into losses and inability of new power plants to service interest costs, leading to non-performing assets at banks,” an anonymous analyst told the Economic Times.

If the prospects for existing coal-fired generators look grim, they are even worse for those planning to build as much as a further 243 gigawatts of coal plants. Behind the scenes Indian government officials have begun issuing warnings against developers proceeding with new plants in the next three years.

When it came to office in May 2014 the Modi Government launched a crash-through campaign to boost coal production. Planning and environmental laws were weakened and massive mine expansions waved through with minimal review.

While Coal India – a government-owned company which produces about 80 per cent of India’s coal – dramatically expanded coal production, it soon found that its biggest problem was a lack of customers.

Earlier this week India’s Coal Secretary, Anil Swarup, bemoaned that “Coal India is today running after the client to take coal … Coal India doesn’t know what to do with the coal. They had to cut down the production in order to save the coal from burning.”

One of the beneficiaries of the glut is the government-owned power generator, NTPC.

Back in 2014-15 financial year NTPC imported about 16 million tonnes of thermal coal. Last year it pared this back to 9.5 million tonnes but expects to import only 1 million tonnes this year from a pre-existing contract.

With an estimated 45 million tonnes of coal stockpiled at Coal India mines, NTPC is under increased pressure to use only domestic coal. “With power demand remaining flat, the situation would not warrant any more coal imports this year,” an anonymous government official stated.

NTPC, which generates almost one-quarter of India’s electricity and estimates it will use almost 170 million tonnes of coal this year, is likely to end coal imports next year and rely on coal supplied from Coal India as well as new mines of its own it is commissioning.

Increased use of domestic coal will deliver yet another shock to the global coal market but will only make India’s air quality worse.

But even NTPC, India’s largest coal power company, has seen the writing on the wall as far as growth prospects for India is concerned. The Economic Times has indicated that NTPC will alter its expansion plans to focus more on renewables and away from coal, and revise upwards its existing target of 10GW of renewables by 2020. This will make NTPC India’s largest renewable energy company.

While India has announced an ambitious target of 175 GW of renewable capacity, including 100 GW of solar by 2022, it has also continued to back the building of new coal plants.

Solar is already cheaper then coal plants in India based on imported coal, with the latest record low price in Chile – albeit in favourable conditions – indicating costs are falling faster than many had previously expected.

The sharpening tussle between renewables and coal for new and existing electricity demand will have profound consequences for India’s air quality, forests, water supplies and be one of the decisive turning points in the struggle for a liveable climate.

With many private power companies struggling with low capacity utilisation rates, high debt levels and grim finances, India’s grand coal industry expansion plans are looking shakier than ever.

Bob Burton is the Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) His Twitter feed is here. Ashish Fernandes is Senior Campaigner at Greenpeace. His Twitter feed is here.  

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  • GlennM

    With India decreasing Coal imports from 16 to 1 million tons in two years I wonder how well Australian Thermal Coal producers are doing ? They seem to be talking up China again..but I suspect that is just talk. Coal prices have gone up recently but a famous saying is “even a dead cat will bounce if you drop it from high enough” !!

    • Neo Lib Yes

      Pretty good actually as hardly any Australian thermal coal goes to India! Most Aussie thermal coal goes to Japan. That dead cat has bounced since February 2016 from USD42 to current USD68, so that is 6 months and really not sure the cat is actually dead…… Don’t believe everything you read.

      • GlennM

        Yes, Time will tell.

        I do not think it has anything to do with a few ‘greens’ it has to do with underlying economics. PV and Wind are just getting too cheap for anyone to bother about Coal by about 2020.

        But when even strong coal advocates like Adani pivoting to renewables in India, and RE being cheaper than coal. Remember this was the guy who thought that 16 billion on an Aussie mine was a good idea. I have to wonder why a commercial organisation would deliberately buy more expensive power and then sell it at a smaller margin. I am sure Mr Adani is not stupid. RE in India is definitely still very small, but is growing at a very quick rate, Solar alone is now 8GW and doubling each year.

        As regards the dead cat bounce, the Coal cycle is usually measured in years (8-10) due to the long lead times on developing a mine and building power plants, so 6 months is a blink of the eye.

        India may, or may not be good at big projects, but they HAVE decreased coal imports by 15/16 th (94%) When their Minister stated he would “reduce coal imports to nothing in 3 years” it seems he was right inspite of many comments from others saying he was “dreaming”.

        Another Indian Minister has said they will have 175GW renewables by 2022. What if he is right too ?

        With 45 Mt sitting at mines clearly they do not need to import any more coal for several years at least. By then Pv and wind will be cheaper than the cost of running a Coal plant…even if the Coal was free…

        In my opinion, is a transformation not just a cyclic, but as you say that cannot be proven for a few years yet. Just do not buy and thermal coal mines in the mean time !

        • Brunel

          He obviously votes for the LNP.

          And has nothing to say about brown coal being burnt in Victoria.

          India should have built air cooled power stations like RSA has.

          There is a drought there now. Using water to cool a coal power station is a waste of water!

        • neroden

          I suspect 175GW renewables by 2022 will be a serious underestimate. You can get there just by tracking the standard adoption curves for wind and solar.

      • Brunel

        The Greens are not in government. LNP is.

        Adani cannot get a loan from any bank to build that coal mine – because it is only viable if the price of coal is $100/ton.

        • Neo Lib Yes

          Sorry then, anti coal types. So you work for Adani? How would you know what all the international banks will do? Are you aware that The major Aussie banks are still lending on coal assets? Probably not as you just read the media information. As I said, don’t believe all that you read.

          • Brunel

            You obviously vote for the LNP.

            Yes, I should believe what you say instead of Bloomberg, BBC, ABC.

          • Neo Lib Yes

            You said that twice now and no I don’t vote LNP. You must vote for the Greens. The articles in Bloomberg etc are mostly written by another contributor here, Tim Buckley of IEEFA, which is an anti coal group. Look it up!

          • Brunel

            I listen to Mr Kobad Bhavnagri. But apart from that I can see solar panels and batteries crashing in price.

            Ok, you vote against the ALP.

          • neroden

            Ah, the COALition. Why do you vote for them? They’re in the pocket of coal mining companies, period. You’re just stating propaganda from the coal mining companies.

            At least I know something about the actual global energy markets. Have you even read Lazard’s LCOE reports? That’s the starting point for any honest investment analysis.

          • Neo Lib Yes

            Question for you then, does the Lazard report take into consideration energy storage and such issues as dispatch
            characteristics i.e baseload vs intermittent technologies? Before you look it up, no it does not, it is just a straight comparison of levelised generation cost, therefore it takes no consideration for peak demand and actual baseload security. So I guess you think you know something but actually don’t! Also the fossil fuel companies donate money to Labor same as the Liberal party. Labor QLD approved Adani’s mining lease and just about every other new coal mine in QLD. So if you are voting Labor, they are doing a bait and switch.

      • neroden

        Pffft. Solar’s so cheap in India that it’s simply going to dominate. Coal in India will not recover.

        • Neo Lib Yes

          So why did numerous Indian companies pay big dollars to acquire the coal tenements in the last 12 months? Up to USD50 per mt in the ground! I guess again you must know it all!

    • Tim Buckley

      To be clear, this article states that NTPC plans to cut imports dramatically this year. The authors are quoting one company (albeit by far the largest user of coal in India), but NTPC only accounted for 8% of Indian coal imports in F2015, and other coal users are not cutting as aggressively as NTPC. Minister Goyal last month forecast Indian coal imports at 160Mt in 2016/17, down 20% yoy from 200Mt in 2015/16, which was itself down 6% yoy from the peak of 212Mt in 2014/15. Structural decline of thermal seaborne coal markets has set in, witness the US$20bn of Indian solar tenders awarded in the last 18 months.

  • Brunel

    What India need is UHVDC lines.

    Solar power stations in barren areas can power cities 3000 km away.

    Should build one from Iran to India.