The hard truth is India has an insatiable demand for coal

Keeping aside the macro-economic and geopolitical factors, one thing that is clear is that India is still far away from declaring its independence from coal. The country is no doubt committed to net-zero energy policy, but at the same time electricity needs of a growing economy in a warming climate makes it fall back time and again on the fuel over which it has a greater control.

That leads to the question as to when will coal peak in India?

The answer to this is not only of special interest to the worldwide community of Climate Change scientists and energy transition investors, but more crucial to Coal India Limited (CIL) and its shareholders, primarily the Government of India. Even more so to the coal-rich states and communities who have to chart their future in an uncertain risk of energy transition impacting their economy and livelihood.

CIL is still not close to its own set target of 1,000 million tonnes of yearly production, which it had aimed to achieve by 2020. In the meanwhile, the Economic Survey of India 2021-22 has projected coal demand in the range of 1,300 to 1,500 million tonnes by 2030. Given the clues of strong persistent demand and the flak CIL has received for falling short of demand, the miner has identified employee productivity and evacuation infrastructure as the focus areas in the short-term.

Although employee productivity has nearly doubled from 1,263 tonnes per man per year in 2013 to 2,032 tonnes per man per year in 2021, the output is quite diverse across its seven subsidiaries, and planning is underway to close down unviable mines in a phased manner. In order to boost production, the company has cleared 16 coal mining projects with a cumulative additional output expected at 100 million tonnes per year. Further the ministry of coal, and the ministry of railways are jointly working on the evacuation infrastructure required to connect mines with coastal power plants which are supposedly shifting from imported coal to domestic coal.

All these efforts require significant capital investments, funding of which is another cause of concern. Given the already increased energy prices and inflationary pressure on the economy, any headroom for increase in domestic coal price is limited. To add to the financial pressure, India’s power distribution companies are in a bad shape and their inability to pay for power purchase impacts everyone in the value-chain, including CIL. As of end FY22, the gross debtors of CIL and its subsidiaries totals Rs 153 billion.

To top it all new financing for expansion of coal mines and allied infrastructure is getting tough with banks and financial institutions signalling to move away from fossil fuel investments. That will impact financial closure for bidders who wish to participate in commercial coal auctions, and as mine developer and operator (MDO) for domestic mines.

Nevertheless, none of these would mean that India can slow down on its coal consumption just yet. The insatiable demand for energy is too large, and there are still returns available in the mining and extraction of coal as well as from operations of thermal power plants.

For the government it means managing the situation in the short to medium term while not taking its eyes off the already committed long term energy transition goals. That would require focused attention on increasing mines productivity, efficiency in the coal supply chain on one hand, and a continued support in the form of incentives for solar module manufacturing and alternatives such as hydrogen on the other hand.

In short, trying all options at disposal to keep fuelling the economy’s engine, while not losing focus on energy security and independence.

For the million-dollar question of when will coal peak in India — let’s just say not so soon as many may like or wish to believe.

Rasika Athawale is Founder, India Energy Insights. Views are personal, and do not represent the stand of this publication.