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India's oil, coal addiction hurdle for speeding up emission goals

Highlights

Oil and coal together account for 70% of India's energy basket

Coal-fired power poses hurdles in cutting emissions: Platts Analytics

Huge reliance on coal creates challenges for carbon credits

The sharp growth in energy demand anticipated over the next decade will make it imperative for India to ensure that oil and coal supplies grow accordingly, as renewable energy on its own may not be able to cater to the entire incremental demand, creating challenges in lowering emissions at the desired pace.

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Petroleum liquids account for 25% of India's energy basket, and coal as much as 45%. Analysts told S&P Global Platts that India will be looking to pursue its planned refinery expansions as well as its coal-fired power projects, a sign that there is still scope for demand growth for both oil and coal in the foreseeable future.

"Global energy outlooks by agencies across the board, post and prior to the pandemic have pointed out that India would be the leading energy and oil demand growth driver over the long term. And none of these have been changed by the pandemic. There is a need to bridge the energy access deficit in the country," Indian Oil Corp. chairman Shrikant Madhav Vaidya told Platts recently.

S&P Global Platts Analytics expects India's oil products demand to grow by an average of around 250,000 b/d every year over the next decade, supported by population growth and a steady rise in disposable personal incomes.

The International Energy Agency recently said that India could witness the biggest increase in energy demand in the world over the next 20 years, with the potential for oil consumption rising as high as 4 million b/d to 8.7 million b/d by 2040. The group also said that a stronger push for electrification, efficiency and fuel switching could limit oil demand growth to under 1 million b/d over the same period.

Indian policy makers have said that the country's oil demand is expected to double by 2040 and it will look to boost refining capacity from the current 250 million mt/year to 450 million mt/year.

Some key challenges

Roman Kramarchuk, Platts Analytics head of scenarios, policy and technology analytics, said a key challenge for India is the fact that 70% of its CO2 emissions come from burning coal, predominantly in the power sector.

"India is clearly not facing the situation in some Western economies and regions where power demand is flat or even dropping," he said.

Platts Analytics Global Integrated Energy model expects India's annual electricity demand growth to average 4.4% over 2020-2030.

"Building non-emitting new capacity to meet this new demand will be a challenge, with these strains further exacerbated if India were to push to cut back generation from coal plants," Kramarchuk added.

The country's coal power capacity, presently at 203 GW, is projected to grow to 220-230 GW by 2025 or sooner with the commissioning of under-construction plants being offset by end-of-life closures, said Vibhuti Garg, Energy Economist at the Institute for Energy Economics and Financial Analysis. The growth in coal consumption is meant to meet rising demands from industries, a per capita rise in energy consumption and increased connectivity of villages to the grid, industry sources said.

Industrial coal demand is expected to remain firm as cement, power and steel companies are dependent on coal with a lack of affordable alternatives, sources said.

With the power load factor -- a measure of efficiency of electricity use -- in India below 60% since 2018-2019, coal-powered plants would run their plants for longer to make up for the cost of setting them up, sources said.

"A set up power plant has a shelf life of 25-30 years and currently power load factor is less than 60%. So, when one considers plants set up in last few years and [those] already being set up, the dependence on coal is not going to come down drastically," said Vasudev Pamnani, director at Lavi Coal Info Private Ltd.

The carbon factor

India's reliance on coal is also dependent on the affordability of renewable energy and the availability of energy storage technology as power purchase agreements start expiring, Garg said.

The country's dependence on coal has a unique impact on the generation of carbon credits.

As calculation of credits takes into account baseline emissions, a solar or hydro power project in India has more potential for credits due to the factor of additionality -- emissions reductions that would not have occurred in the absence of the market for carbon credits.

"Because our power is so dependent on coal, when a company into electric mobility starts getting into carbon credits, then global carbon standards like Verra say your credits will reduce as your electricity is coal-generated and so the source isn't clean," said Vasudha Madhavan, Founder, Ostara Advisors, an Indian electric-mobility-focused investment bank.

As per EIA studies, one metric ton of coal with a carbon content of 78 percent and a heating value of 14,000 Btu per pound will generate 2.86 metric tons of carbon dioxide when burnt completely.

Ashish Govil, co-investor at CO2TKN, a carbon credit blockchain tech company, said India needs to move towards renewable energy quickly to attract ESG funding at very attractive rates in order to build green energy projects.

37th Asia Pacific Petroleum Conference (APPEC 2021) | September 27-29, 2021

APPEC 2021 is Platts Asia's first hybrid event, featuring more than 100 speakers from over 20 countries, with a single platform for global delegates and exclusive sessions with top decision makers. Tune in as we shape and map the future of energy as an APPEC community.

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