Industry
Explained | The FM’s call for industrial investment
The story so far: In April, Finance Minister Nirmala Sitharaman said India’s transition away from coal as a fuel for power would be hampered by the Russia-Ukraine war. “One calculation which I think we had in our mind was that the transition [away from coal] ... will be enabled by natural gas,” she said, adding that “lowering dependence on coal, and the speed with which we want to get out of it, will now be challenged.”
The threat of global warming looms over the planet, promising to bring about unprecedented natural calamities.
An effective way to keep the danger at bay is to cut the use of fossil fuels — coal, natural gas and oil. About 80% of the world’s energy requirements are met by these three fuels. They have likely brought on the climate crisis we now face, as they trigger the emission of carbon dioxide. However, the worst culprit of them all is coal, which emits nearly twice as much carbon dioxide as natural gas and about 60% more than oil, on a kilogram-to-kilogram comparison. Combusting coal also leaves behind partially-burnt carbon particles that feed pollution and trigger respiratory disorders. The consequence of these chemical reactions gains great significance because, the power sector in India accounts for 49% of total carbon dioxide emissions, compared with the global average of 41%.
As of February 2022, the installed capacity for coal-based power generation across the country was 2.04 lakh megawatt (MW). This accounts for about 51.5% of power from all sources. This compares with about 25,000 MW of capacity based on natural gas as fuel, or a mere 6.3% of all installed capacity. Renewable power accounted for 1.06 lakh MW or 27%.
Coal-based power stations are retired periodically which happens all the time. But is not fast enough nor are new additions being halted. And with good reason – coal is still inexpensive compared with other sources of energy.
For FY20, for example, India added 6,765 MW power capacity based on coal as fuel. But only 2,335 MW was retired. According to the IEA’s Coal Report 2021, India’s coal consumption will increase at an average annual rate of 3.9% to 1.18 billon tonnes in 2024.
So, it is not easy to shift away from coal overnight. As the World Coal Association CEO Melissa Manook put it while on her India visit recently, “Coal will still be a significant contributor in the energy sector even in 2040!”
Natural gas has been dubbed as the transition fuel in India’s plans to move away from coal. The international cost of natural gas has zoomed in the recent past from a level that was considered already too high to be financially viable. On May 17, 2022, the price per MMBTU of gas was ₹1,425, compared with ₹500 in April, 2021.
Even back in November last, well before the war made things difficult, the government put in place a committee to ensure that natural gas prices remained stable. Of the 25,000 MW of gas-based power plants, about 14,000 MW remains stranded, or idle, because they are financially unviable.
While renewable energy sources are cheaper than coal, their ability to generate power consistently is subject to the whims of nature — the wind and the Sun. Coal can give you power on demand. Storage technologies are still not mature enough to help renewable energy sources become reliable generators of power.
It appears that the pent-up demand returning in the economy which was in a pandemic-induced stupor for a while has caught policymakers off guard. From having asked States only recently to stop importing coal, the power Ministry urged States earlier this month to step up coal imports as the private sector would take till about 2025 to produce significant amounts of coal.
As per a letter by the Ministry, Coal India, the country’s largest supplier of the dry fuel is set to import coal for the first time since 2015. The aim of the exercise is to avoid a repeat of the power outage crisis that India faced in April — the worst in more than six years. Following the issue of the letter dated May 28 to all state utilities, officials at the States and the Centre, including to the Coal Secretary, the central government has asked States to place import tenders on hold with a view to cut procurement costs using government-to-government channels.
An internal power Ministry presentation is said to point to a 42.5 million tonne (MT) coal shortage in the quarter ending September on the back of high demand for power supply. The shortage is 15% higher than earlier anticipated. Domestic supply of coal is expected to be 154.7 MT, compared with the projected requirement of 197.3 MT. The previously anticipated shortage was 37 MT. The projections for requirements for the year ending March are 3.3% higher than earlier anticipated at 784.6 MT. Without imports, utilities are likely to run out of coal supplies by July.
