DEMAND for coal from the power generation sector in India is expected to continue for a few more years, before it starts tapering off, as solar and wind energy are expected to cause a huge dent in off-take.
India’s coal imports grew by more than 10 per cent during the first eight months of 2018, touching 129 million tonnes. More than 50m tonnes were from Indonesia, the largest source of imported coal for India.
Slackening demand from China — the world’s largest importer of coal, followed by India — saw the price of 4,200 kilocalorie of Indonesian coal drop by 20pc to less than $50 a tonne. Earlier, coal prices had risen by more than 10pc.
The future of coal is uncertain as both China and India are rapidly opting for renewables such as solar and wind power
But the sharp drop in the value of the Indian rupee, which has tumbled from Rs68.8 to the dollar to Rs71.9, is likely to slow down coal imports. Further, freight charges for supplies from Indonesia to India’s eastern coast have risen by almost $15 a tonne.
India also imports coal from Australia and South Africa, but the quantity has not increased by much.
The country’s largest supplier, state-owned Coal India Ltd (CIL), has also been facing problems. Heavy rains during the monsoons have impacted supplies from the company.
Last week though, executives of CIL, which is also the world’s largest coal producer, were confident of boosting supplies to the power sector significantly. “We have taken an aspirational production target of 652m tonnes during the year and off-take of 680m tonnes,” said A.K. Jha, the chairman. The company had initially set a target of 630m tonnes.
The power sector, which is the biggest consumer of coal, will be supplied 525m tonnes (as against 454m tonnes in fiscal 2017-18). CIL, along with two other public sector companies, Neyveli Lignite Corporation and Singareni Collieries, have a total capacity of 1,500m tonnes.
CIL is also busy shutting down underground mines because of issues of safety and economic loss. According to Jha, 53 underground mines will be shut down this year, on top of the 43 that were shut last year.
“We inherited many underground mines at the time of nationalisation when there were more than 700 mines,” he said. “Now we are trying to rationalise mines which are small and not financially viable.”
The bulk of CIL’s production — adding up to 95pc — comes from 177 open cast mines (out of a total of 369 mines). And nearly 60pc of its coal production is accounted for by just 26 crucial mega mines.
CIL is also in talks with the Barapukuria Coal Mining Company of Bangladesh — which is a subsidiary of state-owned Petrobangla — about setting up new projects and in exploring coal mines.
There have been ministerial-level talks between the two countries on coal exploration and mining. Companies from the US, Australia and Germany have also won exploration contracts from Bangladesh of late. China too has been helping the country in coal mining.
THE future of coal, however, is uncertain as both China and India are rapidly opting for renewables such as solar and wind power. Last week, Carbon Tracker, a London-based independent financial think tank, noted that the rapid global growth of clean technologies will see fossil fuel demand peak in the 2020s, “putting trillions at risk for unsavvy investors oblivious to the speed of the unfolding energy transition.”
Executives of Coal India Ltd, which is also the world’s largest coal producer, were confident of boosting supplies to the power sector significantly
According to Kingsmill Bond, the new energy strategist, Carbon Tracker, “the 2020s will be the decade of fossil fuel demand peaks, as one bastion after another is stormed and overwhelmed by the rising renewable tide. This will inevitably lead to trillions of dollars of stranded assets across the corporate sector and hit petro-states that fail to reinvent themselves.”
Fossil fuel demand has been growing for 200 years, but is about to enter structural decline, he notes. “Entire sectors will struggle to make this transition. They can expect price declines, greater competition, restructuring, stranded assets and market de-rating.”
China and India are at the forefront of this switch over from fossil fuels to renewables, with the former already having overtaken the US and India expected to follow soon.
The government has raised the target for renewable energy deployment by 2022 to 228 GW from 175 GW earlier.
But demand for coal is expected to continue growing over the next three to four years. A recent report by Crisil Research noted that the consumption of non-coking coal is expected to clock a CAGR of 5.4pc to 1.07m tonnes, mainly driven by a 6.5pc CAGR in coal-based power generation.
Domestic supply is forecast to log a CAGR of seven per cent to 931m tonnes between fiscals 2019 and 2023. Growth will ride on increased production from CIL and the share of imports is forecast to fall to 13.4pc in fiscal 2023 from 19.6pc in fiscal 2018, says the report.
The rise in steel production is also expected to push demand for metallurgical coking coal to 65m tonnes in fiscal 2023 from 51m tonnes in fiscal 2018. However, domestic production is expected to remain low, resulting in imports adding up to 85-87pc over the next five years.
Rising domestic production and improved quality control have also resulted in savings of Rs1tr in coal imports over the last four years, according to the coal ministry.
Published in Dawn, The Business and Finance Weekly, September 17th, 2018