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India fancies renewables actively but doesn't want to let go of coal

Highlights

Renewable target for 2022 unlikely to be met

Steps to boost coal output strengthened

Coal production higher at 777 mil mt in FY 2021-22

Amid long-standing global push to embrace renewables as a primary source of power generation, India does not want to be left far behind, but at the same time lowering dependence on coal is emerging to be a constant struggle, given how affordable and abundant it is.

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With a slew of lucrative measures like 100% FDI under the automatic route for renewable energy and setting up of project development cell for facilitating investments, the government aims to attract domestic and international investors, which has indeed shown results with some private players showing interest.

In a reply to the Parliament Aug. 2, R K Singh, Union Minister of Power and New & Renewable Energy listed out several steps taken by the government to promote the renewable energy sector in India.

Some of them being waiver of Inter State Transmission System, or ISTS, charges for inter-state sale of solar and wind power for projects to be commissioned by June 30, 2025, declaration of trajectory for Renewable Purchase Obligation, or RPO, up to 2030, and setting up of Ultra Mega Renewable Energy Parks to provide land and transmission to developers on a plug and play basis.

Despite this, India's ambitious target of having 175 GW of renewable energy by 2022 seems unlikely as official data suggests only a little over 100 GW has been met so far.

Coal a powerful future

Meanwhile, India has also set a target to produce nearly 1.3 billion mt thermal coal domestically by 2025 and has taken several steps to achieve it, which experts believe is a big hint that coal-based power generation is here to stay.

In a Parliamentary response Aug. 8, minister of coal Pralhad Joshi said steps such as regular monitoring of coal blocks development by a committee and permission to sell up to 50% coal by captive miners in open market are an attempt to commence coal production early.

The government allowed old mines to restart in partnership with private companies on a revenue sharing basis with state-owned Coal India Ltd. It has also taken up coal blocks to be auctioned to private companies and invited investments from foreign companies, while setting up a single window clearance to boost output from domestic coal mines.

"With coal you can crank the load factor up and down, it is reliable, not dependent on the weather or how you have to dispose the waste as is the case with other alternatives. For large population [with] increasing electricity consumption, coal therefore becomes the first source," an India-based trader said. "We can match commitments to invest into renewables but we cannot just retire coal plants or ignore the point of view of energy security for a developing country."

S&P Global Commodity Insights reported earlier that India aims to add domestic coal production capacity through the approval of new projects and the expansion of those planned for the future. Coal India has also identified 15 projects with an expected annual output capacity of 160 million mt to boost production.

"Long-term demand in Southeast Asia is going to rise for another decade. For instance, Malaysia's coal power plant shutdowns will be offset by the growth from Vietnam and Thailand," an Indonesia-based producer said. "For India and China, the decline in coal import demand is not going to be because of renewables but because of their governments' own preference for self-sufficiency and increasing domestic production."

Coal-based power on the rise

India's total coal production rose to 777 million mt in the financial year 2021-22 (April-March) from 716 million mt in FY 2020-21, the coal ministry data showed. Total coal production in the first quarter ended June 2022 also rose to 205.56 million mt, against 155.85 million mt in Q1 last year.

While many analysts believe India's efforts to increase coal production is directly to lower imports, given how prices remain robust most of the year, others feel it's because the government's own understanding that high renewables-based power generation is a far fetched ambition.

In the latest annual report for FY 2021-22, Coal India's chairman and managing director Pramod Agrawal said the entry of renewable energy sources should not be viewed as a threat to the coal's standing at least in the immediate future as coal would continue to fuel India's electricity generation going by the current consumption pattern, S&P Global reported July 30. "What makes coal a preferred energy fuel, in India, is its abundance, availability and affordability," he said.

According to CIL data, India's coal-based generation accounted for 69.9% of the country's overall electricity generation in FY 2021-22, a growth of 9.5% from a year ago, while electricity generation from renewable sources was 11.4%.

Global thermal coal prices have remained elevated, hitting record highs, as the Russia-Ukraine conflict since February disrupted trade flows amid additional demand from Europe due to sanctions imposed on Russia.

CIF ARA 6,000 kcal/kg NAR physical coal assessment rose to $320/mt on Aug. 9, from $176/mt on Feb. 18, while FOB Baltimore 6,900 kcal/kg NAR coal for September loading was at $258/mt on Aug. 9 as against $143.85/mt on Feb. 18, according to S&P Global data.

However, prices of FOB Richards Bay 5,500 kcal/kg NAR price and FOB Kalimantan 4,200 kcal/kg GAR have eased after rising to record high levels in the month of March and April, at $223.65/mt and $76.95/mt, respectively, on Aug. 9. While the downward trend in Indonesian prices were seen due to weaker demand from China and India amid availability of cheap Russian coal, South African prices fell amid weak demand from Europe because of logistical issues.