There is at least one benefit from COP 26, the moniker for the 26th UN Climate Change Conference of the Parties, currently on in Glasgow, UK. These meetings, held every year, force the nations to measure for themselves and for the rest of the world, what steps they have taken and will take to make the climate change prospects less adverse for humanity. Since there is a meeting every year, nations are forced to keep up the pace of commitments.
Plenty gets written about each COP and this one shall be no different. Actions on the ground, too, happen. To understand it is best to look at some specific developments. The three major economies whose actions will have the largest bearing on the climate change agenda are China, USA and India in that order. So instead of offering a sweeping note of what is happening across the world, in the next few paras I shall write about India and its biggest energy challenge, coal. The details make clear why despite the risks, the solutions are so complex.
For environment activists coal is almost an epithet. For India coal is an essential piece of the nation’s energy architecture. Yet the rush to raise coal production this year by India carries no particular negative connotation. India does need more coal than it did in FY21 and prices abroad are steep. To meet the gap, domestic coal is sought to be used more intensively. This, however, does not mean India is rapidly cutting down forests to open up more mines to extract coal. Instead, the coal economy including the coal and power ministries and the government run coal companies are forced into a sort of stress test, to ensure that existing production meets the demands of the138 odd power stations in operation to generate electricity without any outages.
This test is unlikely to make the coal economy any more efficient than it was in the beginning of the year. The reasons are simple. Domestic coal production has risen very slowly as the productivity of coal mining coal has not particularly improved. State run Coal India Ltd (CIL) has produced 249.82 million tonnes of coal upto the end of September 2021 which is 37.29 per cent of the annual production target of 670 MT. This is a 3.74 per cent growth rate over the level of FY20 and just the same CAGR at which the company has been pushing production for the past eleven years. At the current pace it is unlikely to meet the annual target.
Give or take a few millions of tonnes, domestic coal production has seemingly reached its peak for the Indian economy. Annual production at CIL mines are rising at a crawl because what the industry needs is not available under the Indian soil. There is no lack of effort from the ministry of coal and CIL to hurry things up. Consultancy firm Deloitte has said in a report to the government that it will be immensely difficult for CIL to reach an annual production level of one billion tonne even by 2024.
India has been shifting back its annual target of reaching one billion tonnes of coal production. From FY 20, the new target date is FY25. Even this seems a long haul from the 730.87 million tonnes reached in FY20. To reach a billion tonnes from here will need a CAGR of 8.18 per cent, which is just inconceivable. At the current rate, even if domestic coal production has to reach 800 million tonnessay, that will take India to FY24.
This is a remarkable change coming over the Indian energy landscape. Of the economy’s total present energy consumption, 53 per cent comes from coal, even though of the total production of domestic electricity, 69 per cent is coal fired.
There are also plans to open 22 coal mines in the next few years. Before one gets excited just study the following equation. In the past three years CIL has also closed 54 mines. Another 27 shall be closed within FY24 as their reserves do not meet the grade the industry wants. These are large numbers, even after accounting for the 22 it plans to open. CIL now operates 352 mines (as on 1st April, 2020) of which 158 are underground, 174 opencast and 20 mixed mines.
Essentially then the auctions by the government of India since last year to auction coal mines with total freedom for their owners to do as they want with the coal will just make up for the slowing production growth of CIL. While the second wave of Covid has forced the coal ministry to push back the deadlines for the bidders to submit their papers, not many applications are pouring in, belying the picture that often gets painted abroad.
Even among the companies which have won the auctions for commercial mining of coal, not many are keen to get into production soon. The private producers realise that their mines are further from end users than an average CIL mine. The higher costs for coal lugged from these mines is a deterrent to their production plans. They have asked for a joint venture with CIL to underwrite some of those costs of transportation. CIL is in no hurry to accept the demand.
Yet India needs at least more coal than it did in FY21 just to bring it to the level of FY20. The ease of imports is one of the key reasons why Indian domestic production is peaking so soon. Almost all the incremental coal demand is coming from steel which only needs coking coal. India plans to triple its annual production of steel from the current 100 million tonnes. Demand for non-coking coal, led by the power sector has hardly risen. In six years from FY15 to FY21 the compounded annual growth rate for off take of domestic non-coking coal is just 3.06 per cent.
This was not so even a decade ago. In FY11 the off-take by downstream industry of non-coking coal consistently exceeded the production capacity of the miners. But since then, off-take has tapered. It is now below the production capacity for the past six years, except for a brief spurt in one year, FY18. As a result, the opening stocks with CIL every year, is rising.
The reasons says a senior coal sector officer in the government is because “coal imported by power plants designed on imported coal and high grade coal required cannot be fully substituted by domestic coal, which has limited reserves of high grade coal”.
The reasons why coal was economical to produce in India was its low price which compensated for the lower quality. Due to ‘drift origin”, Indian coal resources mostly consist of poor quality non-coking with even coking coal containing high inherent ash. While coal prices abroad trended around $50 a tonne, Indian prices averaged lower. This offered an incentive for the domestic industries using coal as a fuel to stick to the local output.
Fromthe total installed power generation capacity of 383.37 GW, coal now accounts for only 53 per cent or 202.67 GW. In 2012-13, the aggregate coal based plant capacity was on course to reach 245 GW of capacity.
With prices now running high—Australian coal firms, TerraCom and Whitehaven have margin expectation for October-December at US$ 100 per tonne, the country is naturally flogging its domestic supplies. It is not happening easily.
With low productivity, the coal firms can only raise supplies to downstream users by running down stocks. Due to the peculiarities of the coal economy in India, production happens in lumpy batches throughout the year. Coal produced from a batch of mines is sent to a common railway siding from where it is wheeled off to the different companies in power, steel, cement and paper sectors. The operations are messy in the monsoon months and picks up pace thereafter as it is poorly mechanised. Post monsoon, CIL mines raise their production, inventories at the sidings begin to ease up as power companies pile stocks to meet the higher demand for electricity in the second half of the financial year. An alternative used by companies like NTPC was to locate their power plants next to the coal sidings. As the current crisis shows this strategy has paid off.The Deloitte report has also pointed to the same evacuation challenges which could cripple CIL’s chances of expanding production. The consultancy firm has said there should be large scale automated first mile connectivity points for CIL at its major mining clusters including coal handling plants, silos and rapid loading systems. But of the 36 odd such points not even ten are operational at this point because of the usual delays in placing investment orders and land acquisition challenges.
The sluggish pace means Indian financial institutions including insurance companies will be spared the difficult choice of having to say no to finance the expansion of coal mining projects. Foreign share holders in Indian banks have already begun to push back against giving loans to coal projects. Black Rock and Norway’s Storebrand ASA, both of which hold less than 1 per cent stake in SBI have raised their objections over the past year.
So Gas:
These vagaries of the coal economy have their costs. A coal shortage has hit India’s thermal power companies for the third time within ten years. Each crisis has chewed off incremental thermal capacity and this one is going to be no different.
As the country grapples with an acute coal crisis to feed the thermal power plants, the shortfall is consequently a rather good news. The Indian government is being forced to consider more import of natural gas along with possibly the highest rate of installation of
The rationale for the choosing gas over coal is simple. Despite a 62 per cent upward price revision (september 2021), natural gas has become more competitive against coal. Experts measure this as the levelised cost of electricity between natural gas versus super critical coal plants (a super critical coal plant has a higher efficiency compared with a traditional coal fired plant). The table shows the improvement was sharp between 2013 and 2017. Measure for measure factoring in the competitiveness, coal is proving to be more costly to import than gas.
For the 105 Bcm of natural gas India plans to import annually by 2030, the country has already built re-gasification infrastructure at the ports. It already has 39.5 mtpa of capacity, good for 2026 and an additional 30 mtpa is on course to become operational by 2023. Last month India’s minister for oil and gas Hardeep Puri and US energy secretary Jennifer Granholm have redesigned the Gas Task Force to India-US Low Emissions Gas Task Force. It is just the impetus needed to transform the domestic fuel economy to depend more on gas than coal.
And Hydrogen:
In a twist to the coal tale, India also plans to use hydrogen in a big way. It involves extracting it from coal and bio gas. Once India is sure the ecosystem has become stable, only then will it announce as part of a bouquet of measures towards achieving a net zero carbon emissions target.
Prime Minister Narendra Modi indicated as much at the Climate Ambition summit this year. “We must not only revise our ambitions, but also review our achievements against targets already set.…India will not only meet its own targets, but will also exceed your expectations”
A joint Niti Aayog—Ministry of New and Renewable Energy simulation exercise shows that clean hydrogen could cut up to 34 per cent of global greenhouse gas emissions. But this needs a supportive policy environment. The Aayog has also recommended that the gas pipelines being laid across the country should eventually be used to transport hydrogen.
Different ministries feel that it would be possible to adopt this mix of approaches as the price of renewable energy has reached a low of Rs 2 per unit. Besides, globally, breakthrough advances in carbon capture technology are expected soon. This will leave more room for the use of coal to make hydrogen. Coal-based power generation can grow to 248 GW in FY27 from the current 206 GW (as on August 2020)
Hydrogen is mostly extracted from natural gas, but India, under its atmanirbhar route, wants to deploy coal at one end and renewable energy at the other end to extract hydrogen. India has large reserves of coal and the price of electricity generated from renewable energy is falling every year. The economy imports almost 50 per cent of the natural gas it consumes and the percentage is expected to go up despite efforts to locate domestic sources. So it is attractive to try to use technology using both these options.These demonstrations could put question marks on India’s hunger for natural gas. However, an expert said that since natural gas will be required for the production of urea and as fuel for domestic cooking for the foreseeable future, the current levels of imports are unlikely to be affected. But there is no doubt that the government is now far more keen to tap into hydrogen than natural gas
Hydrogen is not a fuel, but, like electricity, is an efficient carrier of energy. While automobiles and railways are moving to renewable energy-based generation of electricity, industrial units such as those that produce steel or cement cannot get the heat they need from these sources. Hydrogen, though, can generate the required level of heat.
The catch is that currently, hydrogen is generated primarily from natural gas through a process known as steam methane reform. However, if it can be generated by splitting water in an electrolysis reaction, it becomes what is known as blue hydrogen — a renewable energy source.
Both MNRE and Niti Aaayog mandarins believe that it is more economical to produce hydrogen through electrolysis. By 2025 electrolysis capacity globally is expected to grow 55 times compared to 2015.
They are also hopeful that in another five years, the technology for carbon capture and sequestration will have matured enough to make coal-based hydrogen generation a green option. The process is as follows: In a two-stage reaction of coal with steam under high pressure, the final output is hydrogen and carbon dioxide. The hydrogen shall be used while the technology of carbon capture will ensure that no carbon dioxide is released into the atmosphere. Since hydrogen extracted from natural gas also leaves a carbon dioxide residue, Indian experts reckon it is better to invest in the abundant domestic coal reserves to do the trick.
“When considering a pathway to keep global temperature rise within 2 degree Celsius by 2050, hydrogen consistently plays a critical role. There is no other viable pathways to decarbonisation,” the Niti Aayog exercise, notes.
