Reports of the end of coal in India exaggerated

The power industry press has recently picked up on a briefing note on the apparent slowdown in coal deployment in India from the Institute for Energy Economics and Financial Analysis (IEEFA) – not, it should be noted, an academic institute, but a US-based group with a rather pronounced anti-coal position.

The headline figure of IEEFA’s note is the supposed cancellation of 46 GW of coal power projects in the calendar year 2019, based on data from the Global Energy Monitor (a coal plant tracking NGO previously known as Coalswarm). This is then used to develop an argument that coal power has become largely ‘unbankable’ in India, as the country continues to transition towards solar and wind power.

There is a lot of uncertainty and debate around coal plant data for India, which I would like to try and shed some light on with this blog. With around 237 GW of coal power capacity (including industrial ‘captive plant’), India currently has the third largest coal fleet in the world, and will soon overtake the USA to claim second position. Most long-term projections show more coal growth in India over the next 20 years than anywhere else, so the country is of fundamental importance to the sector.

When discussing coal power capacity in India, it is important to distinguish between the government-owned plants and independent power producers which supply power to electricity distribution utilities, and the ‘captive’ plants used to power industry (but which may also sell surplus to the grid). India’s Central Electricity Authority (CEA) provides a figure of 205 GW of grid-based capacity at the end of February 2020. For the total capacity, the IEA Clean Coal Centre uses data from S&P Global’s World Electric Power Plant Database (WEPP), which showed an additional 32 GW of captive coal in December 2019.

The WEPP also shows almost no net change in ‘planned’ coal capacity over the past calendar year, remaining static at around 43 GW (counting only units >30 MW). This conceals the fact that around 6 GW of plants have disappeared from the pipeline, and another 6 GW been introduced in the same period. The database also shows over 33 GW of coal currently under construction, which would take total operational capacity to 264 GW, if we ignore potential retirements. Nearly all of the capacity planned or under construction is for power generation to the grid.

It is difficult to square the WEPP data with the numbers taken by IEEFA from the Global Energy Monitor’s ‘Global Coal Plant Tracker’, and this is not helped by the fact there appear to be some errors in the data table they present. They seem to show that 28 GW of plants have been lost from the pre-construction (planning) pipeline, of which 10 GW appeared as plants that are now under construction or operational. In other words, a net 18 GW seem to have been cancelled, leaving 29 GW still in various stages of planning. The Coal Plant Tracker helpfully breaks down ‘pre-construction’ plant into those that are merely announced, those that are pre-permit, and those with permits; all but one of the 18 GW can be accounted for by plants that were yet to achieve the more certain ‘permitted’ stage. IEEFA also throw in 22 GW of ‘shelved’ plant which represent projects that have been in stasis for long enough to be considered cancelled by the database. I would question whether these projects have much bearing on a supposed trend this year, but adding these should still only bring the total to 40 cancelled gigawatts.

The IEEFA note also questions whether the 62 GW of ‘under construction’ capacity recently announced by the Minister of State for Environment, Forests and Climate Change will be realised, associating 27 GW of this capacity with plants in uncertain pre-construction development stages. Looking at the CEA source for this 62 GW figure, we can see that the difference with the 35 GW of capacity listed as under construction in the WEPP is largely due to units now categorised as ‘delayed’ (~13.8 GW of entirely private-sector projects). Construction work has begun at these sites, but has been halted for a variety of reasons.

In 2015, India embarked on a highly ambitious drive to deploy wind and solar power, having set a target of achieving 175 GW of these sources by the end of the 13th five-year plan in 2022. Partly as a result of this goal, India’s National Electricity Plan of 2016 stated that it would not require any net growth in grid-based coal capacity to 2027, over what was operational or under construction at the time – amounting to 249 GW. This followed a previous five-year plan (2012-2017) in which capacity additions exceeded targets and over 85 GW of new coal came online, with 50 GW of plant under construction to be carried over into the current five-year period.

With the 2027 target for grid-based coal power already set to be met by plants under construction, it is perhaps not surprising that around half of the announced or pre-permitted plants have been progressed this year. India’s energy sector is rife with proposed projects that never see the light of day, owing to numerous reasons including problems with permitting, land acquisition, and financing. Under any policy climate, it is fairly normal for there to be a lot more projects proposed than progress to construction, but it is very rare for plants to be cancelled after financial close. The IEEFA note briefly mentions an enormous 600 GW of ‘cancelled’ plant over the last decade, which largely stems from a well-known surge of speculative and unrealistic plant proposals which arose around 2012-2013, due partly to financially exploitable features of an older planning regime.

Of course, meeting the 2027 target does not mean there will be no new coal at all in coming years, as India has many older, less-efficient plants which can beneficially be replaced with new plant, and there are more power localised shortages and market drivers. In this context, a hard capacity target is unfeasible, and India’s state-based electricity markets continue to deliver a pipeline of new projects.

In 2019, the CEA produced a draft report on the ‘optimal generation mix in 2029-2030’, which recommends 266 GW of grid-based coal capacity (as well as an ambitious 440 GW of wind and solar). This represents a relatively modest increase over the current coal capacity target, so IEEFA’s assertion that it is unlikely to be achieved is surprising – especially given the clearly active pipeline of projects available in the country. It is worth noting that the IEA’s latest World Energy Outlook shows an even-higher 307 GW of coal capacity in 2030 in its Stated Policies Scenario (this represents policy ambitions which are not necessarily enacted).

IEEFA’s key assertion is that new coal plants are no longer financially viable, as the growth in wind and solar have pushed plant load factors to below 60%. It’s true that this new operating regime can be challenging for coal plants in India. However, unlike many other countries with high renewables deployment, Indian wholesale tariffs are highly regulated and compensate plants for fixed costs. In any case, low operating hours do not signify that coal generation is not needed at all, as wind and solar both need dependable back-up when the sun isn’t shining or the wind isn’t blowing. The CEA report also shows that the share of renewable generation at the start of 2019 was around 21% of capacity, but only 9% of energy generated (and this includes more dependable sources such as biomass and waste firing and small hydro projects). IEEFA helpfully suggests that India retrofits its coal fleet to operate more flexibly, but unsurprisingly this is already a clear priority for the Indian power sector. A number of initiatives and international collaborations with this goal are underway, covered by Dr Maggie Wiatros-Motyka in a recent IEACCC report (CCC/295, 2019).

IEEFA also advise that India turn more to battery storage and peaking gas plant to back up renewable generation, combined with real-time price signalling and smart metering – these are big asks in the medium term. The CEA report already recommends an ambitious 34 GW of battery storage by 2030, but batteries are a short-term form of storage aimed at providing a ‘peak shifting’ service rather than long-term back-up. Strikingly, any additional gas capacity in India is entirely discounted by the CEA, citing the lack of domestic gas supplies and the high cost of liquefied natural gas (LNG) imports, while also noting that significant gas capacity in the country has become stranded due to lack of fuel. Energy security and independence is of high importance to India, as evidenced by its drive to increase Coal India’s production to 1 billion tonnes per year by 2024, in order to reduce reliance on imports. Energy market reform and roll out of smart meters is ongoing in India, but the idea of engaging consumers more directly with market price signals is a challenge even liberalised markets in more developed countries are struggling with.

Electricity generation is a serious business in India, where 200 million people still lack access to electricity and per capita consumption is around a quarter of European countries. The government is clearly committed to a huge growth in solar and wind capacity to meet growing demand, but it is equally committed to coal as the other pillar of a reliable electricity grid.

This is why coal plant deployment in India is widely expected to continue beyond 2027, with the World Energy Outlook projecting 414 GW in 2040 under the Stated Policies Scenario. It is vital that this coal deployment includes further replacement of older, less-efficient plants with the state-of-the-art designs that are already being rolled out in India, and the current drive to improve pollutant controls must also accelerate. Forthcoming work of the IEA Clean Coal Centre will look at these issues in more depth.