In a recent interview with Indian Infrastructure, Dr Anil Kumar Jain, secretary, Ministry of Coal (MoC), shared his views on the performance of the coal sector and the outlook for coal demand in view of the growing prominence of renewables. He also spoke about the ministry’s priorities to bring in efficiency and sustainability in the sector. Excerpts…
How has the performance of the coal sector been in the last one year? What have been the major hits and misses?
The coal sector, in India and the world, has been beset with challenges in the past year or so. The Covid-19 pandemic has had an impact, given that coal mines are places where people work in close proximity with each other. Although this is an essential sector and must keep running, it could not perform to its maximum potential. During the Delta wave of Covid in the first quarter of 2021-22, power demand stagnated and subsequently, Coal India Limited (CIL) reduced its production. Coal cannot be stored for more than 45 days as it can combust. As on March 31, 2021, CIL had a stock of 100 million tonnes (mt), which had earlier never exceeded 63-64 mt. Then this year, all of a sudden, there was a resurgence in power demand, which impacted the coal sector.
That said, the MoC has very clear focus areas. In late 2019, we announced CIL’s target of 1 billion tonnes (bt) of coal production by 2024. CIL produced 622 mt in 2021-22 and is set to produce 700 mt in 2022-23. In the five-month period April-August of the ongoing fiscal year, CIL has already produced 44 mt more than in the same period last year. Meanwhile, Singareni Collieries Company Limited (SCCL) produced 50 mt in 2020-21, 65 mt in 2021-22 and is expected to produce 70 mt in the ongoing fiscal year. So, against 777 mt of coal production last year, the country is expected to achieve a production of 920 mt this year.
In terms of captive production, in 2014, captive coal mines were cancelled, and these were later awarded to captive consumers across the industrial and power generation segments. Given the gestation period of a coal mine, it took four to five years for these mines to start production. From 69 mt in 2020-21, captive production increased to 89 mt in 2021-22 and is expected to reach 140 mt in the ongoing fiscal year. Despite rising demand, imports have remained at the same levels this year as last year. While power generation has grown almost 10 per cent in the past year, there has been no increase in coal imports. The entire demand has been met by domestic production.
Imported coal-based power plants are a big disappointment. It is about time that we start thinking of converting those boilers to make them compatible with Indian coal. Their PPA prices are high because of international coal price volatility and could become cheaper by using Indian coal. Currently, domestic coal-based plants have 25 mt of coal stocks compared to 11 mt last year. Other than the usual coal imports for blending by some plants, further coal demand may be entirely met by domestic coal.
Due to the Russia-Ukraine war, coal prices have shot up, from $25-$30 per tonne to $100 per tonne. States that had PPAs with imported coal-based plants have refused to buy power from them. When imported coal-based plants slow down, the entire burden is transferred to the domestic coal-based plants of gencos and domestic coal mines, and it is not possible to transport domestic coal in large amounts to these plants immediately. In this background, imports were sought for domestic coal-based plants and the production cost of electricity went up by Re 1-Rs 2 per unit and impacted the entire sector. This, coupled with the sudden surge in power demand, heavily burdened the coal sector.
“Renewable energy plants suffer from intermittency and ramping issues, which will hamper round-the-clock operation and will, in turn, sustain the demand for coalbased capacity.”
Are we on track to achieve the 1.23 bt coal production target by 2024-25? What are the measures planned to increase coal production and availability in the country?
In recent years, contracts for production in CIL have been handed out to mine developers and operators. Private companies are able to execute projects faster and accrue greater yields. Coal mining blocks have also been auctioned in large numbers to private players recently. The institutional deregulation of the mining industry since 2012, inviting more private interest, has been a welcome development. With these measures and ongoing production levels, we are well on track to achieve our target.
Since the introduction of commercial mining in 2020, 57 coal blocks have been auctioned. The captive mines auctioned to coal-based power plants (mostly state owned) during 2015-20 have a production capacity of 250 mt per annum (mtpa). Other coal mines awarded to private players have a capacity of 150 mtpa, taking the total capacity (without SCCL and CIL) to 400 mtpa. SCCL has been witnessing declining yields and hence has started investing in and taking over mines in Odisha. They are expected to produce 100 mtpa of coal production. Furthermore, CIL will add 300-400 mtpa of capacity in the coming years, taking the aggregate capacity to 1 bt or more by 2025.
What is your outlook for coal demand in the near to medium term? What is the expected demand from the power sector going forward?
From a simplistic demand-side viewpoint, India has ample demand. As far as coal is concerned, India can boost its coal supply. Challenges such as policy constraints and public sector inefficiency may restrain the scope and pace of expansion of coal production; however, those issues have been sorted out to a large extent. There have been five tranches of commercial coal mine auctions since 2020 and each of those tranches has attracted interest from genuine operators. Some of the investors and bidding entities are Adani Enterprises, Jindal Steel, and Vedanta Limited. There has also been aggressive bidding in the recent tranche of coal blocks, similar to the aggressive bidding observed last year. The level of competition and aggressive bidding for coal mining blocks are indicative of the growth potential of this sector. The change in the business environment is symbolised by the fact that industry behemoths are now committing their money to the sector.
India’s demand for coal is set to rise given that the country is projected to need around 28 GW of additional coal-based power capacity by 2032. Hence, coal demand will continue to increase in absolute terms despite the share of coal-based generation declining in the total energy mix owing to the increase in renewable energy. As per the Central Electricity Authority’s (CEA) draft National Electricity Plan for generation, the domestic coal requirement is estimated at 831.5 mt in 2026-27 and 1,018.2 mt in 2031-32, and imports by plants designed on imported coal will be 40 mt.
“We are trying to bring in a coal trade exchange. It will have forwards, futures and physical clearing, from multiple sellers to multiple buyers.”
Is there any appetite for coal given that renewables have taken centre stage in recent times?
Renewable energy is taking centre stage because of huge policy tailwinds such as a waiver of interstate transmission system charges, imposition of renewable purchase obligations, and lower land acquisition costs. Additionally, renewable energy-based plants do not have huge operational costs as, unlike coal-based capacity, they do not require fuel. However, these plants suffer from intermittency and ramping issues, which will hamper round-the-clock (RTC) operation and will, in turn, sustain the demand for coal-based capacity. I am not considering renewable energy-based storage as a viable alternative for grid stabilisation given that it is currently very expensive. The tariff per unit of variable renewable energy is understated on account of ignoring the cost of operation and grid stabilisation during off-peak hours, which would come to around Rs 4.50 per unit and raise the overall cost at present. Besides this, there is also huge scope for increasing our per capita annual electricity consumption from the current levels of around 1,100 units. Moreover, 1 MW of a solar power plant gives a capacity utilisation factor of around 17 per cent while 1 MW of thermal energy gives a plant load factor of 60-70 per cent on an annual basis. Therefore, to generate the same amount of power as 1 MW of thermal, 4 MW of solar plant capacity is required.
What are the top three priorities for the coal ministry?
We need to bring in sustainability in a big way in the coal mining and transportation process. In coal mining, the only blame we suffer is the cutting down of tree cover. We have taken a call that we will not approve a mine that has over 40 per cent forest cover. We will approve only those mines that have forest cover of below 40 per cent. In fact, on the sustainability front, we have taken various other steps as well. We are auctioning mines that are lying closed currently after having been in operation but have residual coal reserves. The bidding round for such mines is under process. These mines already have forest clearance but had to be shut down because of cost considerations. So, to increase India’s coal production, we do not want to cut down more trees. Further, we are placing hoppers for coal handling, which is being transported through trucks. Secondly, we are focusing on bringing in operational efficiency in processes through better mechanisation and digital mining. For all processes, there will be standards to bring in efficiency so that there is no theft or loss, and the transportation distance is the least so as to minimise costs.
The third priority is to bring in coal markets so that good coal gets rewarded and bad coal can be pushed down. We are trying to bring in a coal trade exchange. It will have forwards, futures and physical clearing, from multiple sellers to multiple buyers. Currently, we have trades only from a single seller to multiple buyers and so there is no competition among the sellers. This platform will take around four to five years to mature.