Is the Indian coal domino about to fall?

The up-beat claim by the coal lobby that Indian coal power will keep growing for decades has been sorely tested in 2016, as the country’s power sector is rapidly shifting towards renewables, even as public opposition to air pollution, displacement and deforestation for coal mining grows. India’s coal power boosters are now confronting an increasing array of signals which suggest the diversification away from coal will only accelerate in 2017.

Such a shift would provide relief for many communities in India confronted with displacement, lethal levels of air pollution and conflict over increasingly scarce land, water and forests. It also rekindles hope that a peak in global power sector emissions may be far closer than previously thought.

While some signals (such as recent coal production trends) are somewhat tentative, others, like the dramatic downwards revision of official future power estimates, are far more definitive and have huge consequences.

Between April and October this year the Central Electricity Agency (CEA) reports India has commissioned (p. 5) just over 3600 megawatt of coal plant capacity, down almost by half on the year before. While the financial year still has four months to run, the coal sector may well fall short of the 13,000 MW of new plants expected to be commissioned this year. (India’s energy data is reported to match the financial year, which runs from April 1 through to March 30.)

Massive stockpiles of coal at mines and power plants due to reduced demand for power have forced a slowing of mine production, which has remained relatively flat over 2015. To cap it all off, coal plant utilisation rates continue to fall year on year, and are hovering below 60% for the April-October 2016 period.

Over the same period the combined generation of wind and solar grew by over 43 per cent compared to the year before, massively outpacing the growth rate for thermal power. While generation from conventional sources – predominantly coal – grew by a larger amount in absolute terms, renewable generation’s growth at over six times the rate of conventional sources is none-the-less hugely significant. In all, 28% or over a quarter of all new generation between April and October 2016 came from renewable sources.

Coal’s pipeline of projects just got far shorter

There are other reasons why the coal sector is feeling decidedly unwell.

This week the CEA revealed in its draft National Electricity Plan (NEP) that for the five years to 2022 the country does not require any more coal-based capacity addition till 2022 above current levels. This in effect confirms a Greenpeace analysis from October that showed that over 90% of the plants currently under construction will remain unutilised by 2022, even at official electricity demand and GDP growth rates.

As expected, given India’s severe energy shortage and millions without electricity, the plan’s estimated growth of 187,000 megawatts (MW) in new capacity between 2017 and 2022 is huge. But the critical point is that the bulk of this – 115,000MW – consists of renewables.

The draft NEP is clear that there is no need for a single additional MW of coal power till 2022. Moreover, considering the over 50,000 MW currently under construction, likely to come on stream in the next few years, there is also no need for additional coal power plants till 2027. This in effect signals that there is no need for a single new coal power plant to be approved, receive finance, be granted permits or break ground in India for the foreseeable future – if ever!

If the draft plan is adopted, it effectively signals the end of the line for new coal plants in India.

Solar tariffs are already on par with those expected from new coal plants. If the fall in the costs of solar and wind continues, and there is no reason to believe they won’t, it is hard to see a financial basis for any sort of a revival for coal.

While 50-65GW of new coal capacity is officially ‘under construction’, overwhelmingly by the private sector, much of it is on very shaky financial grounds. At many of these plants, (at least 15,000 MW) work has been stalled for months, even years. Many plants are struggling to get finance, ensure sustainable supplies of water, acquire land and survive in the face of public opposition. The CEA’s assumption that these plants will be completed may yet prove to be optimistic.

With existing plant utilisation rates continuing to fall to below 60%, (utilisation rates for private generators are even lower) the financial incentive to speed up construction is weaker. With most coal plants designed to run at high utilisation rates of 80 per cent and over, low use spells financial trouble for plants with high fixed costs. Worse still, fluctuating utilisation rates imposes much higher wear and tear – and the maintenance costs that goes with it.

Lower utilisation rates have contributed to the build-up of large stockpiles of coal at pitheads and power plants – over 58 million tonnes. This in turn has forced the government-owned Coal India Limited (CIL) to cut back production to the extent it is now running at just 0.7 per cent higher than last year. (CIL produces over four-fifths of domestically mined coal.)

If the ‘pipeline’ of proposed coal plants is coming to an end, the hope by coal exporters that Indian imports would prop up the ailing seaborne trade look increasingly forlorn.

While thermal coal imports have risen marginally so far this year, on data to September, a big fall is projected in the next few years, with pressure on generators to switch to domestic coal to reduce import-dependence and foreign exchange outflows. The government has announced it wants to end coal imports within a few years.

Something in the air

This week the Chief Executive of the London-based World Coal Association (WCA), Benjamin Sporton dusted off old talking points from the last decade, claiming India would be better off building more coal plants than switching to renewable power, which he claimed was too expensive. The WCA represents coal exporters such as BHP Billiton, Peabody Energy, Glencore and Rio Tinto.

As Sporton was pushing his anti-renewables line, media reports referred to the holy city of Varanasi as having the country’s most toxic air, Allahabad in Uttar Pradesh had no clean air days in 2015 and polluted air from India fouled cities in Pakistan. Recent reports estimate that over 500,000 Indians die prematurely each year due to air pollution.

With an urban middle class now waking up to the terrible toll on their health from polluted air, and the realisation that renewables are now cheaper than new coal, the writing on the wall is clear – the Indian coal domino is close to toppling.

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.