Coal transition in India

Coal meets 30% of the world’s energy needs and generates 41.1% of world’s electricity (WCA, 2016). India is currently the third largest power producer using coal and third largest coal importer in the world. The Indian population is characterized by low levels of consumption of modern energy (880 KWh/capita/year) by international standards. Nevertheless sustaining one of the fastest GDP growth rates in the world currently at above 7% per annum, India is well on track to meeting and may be surpassing its NDC Paris commitments for 33-35% reduction in GHG intensity of its GDP during 2005-2030 (around 25% reduction done during 2005-2014) and 40% share of non-fossil electricity capacity by 2030 (around 30% by 2017 already). Coal, however is projected to remain the mainstay of Indian energy systems at least until 2030.Global energy markets are experiencing a shift away from coal as a result of international agreements, national climate policies, increasing regulatory and political constraints on coal, and competitive pricing in alternative fuels. However coal transitions especially in coal dependent economy like India will be challenging, mainly due to energy security concerns and national targets (which are aligned with SDGs ) on universal electricity access, housing, health, and education by 2022. Near-term transitions away from coal therefore seem difficult. However we analyse alternative decarbonization pathways and explore their impacts on energy systems, and subsequently the coal sector. Bottom-up techno-economic model, AIM/Enduse is used to conduct sectoral analysis to assess the carbon dioxide emissions, energy mix across various sectors and coal consumption under NDC and 2°C scenarios (2°C_conventional and 2°C_sustainable). Our analysis provides insights on revising the Indian NDCs to possibly raise their overall ambition levels. The report addresses key debates on a) the future of coal in Indian energy systems, b) its influences on international coal trade, c) possibility of resultant stranded assets, and d) impact of critical natural resource such as water on coal-related assets.

Future of Coal in India and International Trade

The report derives key insights on coal demand till 2050 that need to be taken into consideration for future policies in coal, and dependent end-use sectors in the coming decade. In addition to NDCs, deep decarbonization of the economy needs to emphasize more on (according to selected pathway):

• For both 2°C scenarios
  • Increased energy efficiency in energy supply (power sector) and demand sectors (industry, transport, building and agriculture)
  • Enhanced deployments of renewables – 175 GW solar by 2030 from 70 GW (2018)
  • Demand reduction in the end-use sectors through dematerialization, recycling, reuse and changed behaviour
• For 2°C_conventional scenarios
  • Deployment of Carbon dioxide Capture Utilization and Storage (CCUS) by 2050 vis-à-vis INDC in power and industry sectors (cumulative emission reduction of 6 Gt by 2050
• For 2°C_sustainable scenarios
  • Increase in gas power generation capacity from 24 GW in 2018 to 105 GW by 2030
  • Increase in nuclear power generation capacity from 7 GW in 2018 to 30 GW by 2030 and 50 GW by 2050
  • CCS required in industry sector (cumulative emission reduction of 2 Gt by 2050)

With limited domestic reserves of coking coal and other conventional fuels such as oil and gas in addition to resource constraints (such as water, land) and local pollution, the coal and associated businesses/infrastructure lock-ins are and will be facing challenges in the coming decades. Implementing 2°C-compatible coal transition scenarios will require synchronised stringent actions which include: maximising the efficiency of the existing coal fleet (especially by retiring old inefficient plants and increasing the national average PLF and PAF); scaling up new and alternative fuels (renewables and storage, nuclear, gas); reducing end-use energy demands; developing a coherent strategy for the future energy systems to manage risks and avoid stranded assets; and boosting innovation and commercialisation of CCUS. Table A lists the possibility of revising NDC targets by raising the current GHG emission reduction targets.

International Trade

On international coal trade, even if the central government retains the suggested zero-import policy for thermal coal, India will still need at least 50 Mt of steam coal imports due to demand from its import-based power plants. Table B presents the estimated coal production and imports under 2 C scenarios. Due to complete phase down of coal in power sector, the overall demand of steam coal reduces by 8% in 2°C_conventional and by 59% in 2°C_sustainable scenario over INDC scenario.

Stranded Assets

This report categorizes the types of stranded assets in both coal reserves and coal based power plants. Roughly one can say that nearly 220 billion tonnes of coal will remain unutilized in Indian coal mines with a notional value of roughly USD 6.7 trillion, if we take average price of coal at Rs. 2000 per tonne (~30 USD/t). Around 222 GW out of 367 GW of total installed generation capacity is coal based as on July 31, 2018 (MoP, 2018). On the other hand, coal-based power plants closed or declared non-functional due to their inefficiency and pollution amounted to 18.5 GW in 2013–2014, 23 GW in 2014–2015, 26.8 GW in 2015–2016, and 30.5 GW in 2016–2017) (MoP 2017). There are plans to shut down about 37 GW of anti-quated, heavily polluting subcritical coal plants in the near future (Singh, 2016).Since 2006, India has added 151 GW of new coal power, with about 75 percent of this capacity being subcritical (Shearer et al. 2017). These plants could be vulnerable to techno-economic-regulatory shocks due to possible coal phase down, as they are not fully depreciated and have considerable technical life remaining. The present value of these assets is around USD 100 billion. The report also discusses the possible increase of stranded assets according to selected alternative 2°C stabilization pathways in addition to physical (coal and water availability, pollution) constraints and dynamics of national and international markets.An important facet that has not been touched upon in the current report but will play an important role is studying impacts of coal transitions at social, political and economic levels and subsequently preparing all stakeholders for a softer landing.

Impact of water resources on coal-based power plants

With growing population, urbanization, and industrialization, the demand of water will increase substantially in future. The limited supply in the availability and accessibility of fresh water at local levels, will lead to widening of the demand-supply gap across major end-use sectors in future. There has been an observed growth in competition and conflict between agriculture, which consumes around 70% of water in India, and industry especially power generation for fresh water. Power plants in likely water scarce regions are projected to face acute water challenges due to varying and uncertain weather across India that is increasingly being observed (Table C).

One GW of power plant shut down for a day, faces a loss of approximately INR 4-10 Crores (USD 0.6-1.5 million) in revenue (IIMA 2018, Greenpeace 2017). Our report presents methodology adopted for analysis, and discusses impact of water on a few large coal based power plants.