Home Minister Amit Shah’s recent statement that India will likely invest Rs 4 trillion ($55 billion) in expanding new and existing coal mines, some of which may go into speculative, domestic ‘clean coal’ projects over the next decade to create a hope for ‘second life’ is, in our view, entirely inconsistent with the country’s policy direction and ignores the lack of proof of economic viability.
However, Shah’s additional emphasis on the need for India to aggressively stimulate investments in new, low cost, domestic energy supply to both cater for a return to sustained economic growth and sustainably reduce its excessive reliance on highly polluting and expensive fossil fuel imports is entirely correct.
Firstly, the minister is well aware there is no such thing as ‘clean coal’, a concept that describes a hope that new emissions abatement or carbon capture and storage (CCS) technology might one day solve this critical problem central to ongoing coal use. That has yet to occur viably, anywhere around the world.
Secondly, there is almost no economic or scientific evidence globally to support the proposition that thermal coal has any material ‘second life’ use (be that underground coal gasification (UCG), coal-to-liquids, coal-to-chemicals et al).
Coal currently plays a critically important role in balancing the electricity grid while India drives an ever-larger infrastructure investment into ever-cheaper domestic, sustainable, zero emissions renewable energy. The objective to phase down reliance on imported thermal coal is entirely consistent with increasing India’s energy security, but the country has to be careful about extrapolating coal demand growth trends of the past — now that Indian solar is lower cost that even the marginal fuel cost of running an existing minemouth coal-fired power plant.
Indian thermal coal demand is set to plateau by the second half of this decade. As such, coal import substitution is only a limited medium-term opportunity at best.
Any ‘second life’ investment proposition becomes even more outdated and unbankable in the light of global ratcheting up of national ambition to deliver on the Paris Agreement, led by China’s net zero emissions pledge in 2020, and reinforced by similar pledges of accelerated and concerted efforts by 2050 from Japan and South Korea.
The election of President Joe Biden means the United States will likewise play a significantly more constructive global effort in 2021 in the run-up to the 26th UN Climate Change Conference in November. Meanwhile, the European Union’s emissions trading system (EU ETS) pricing is now consistently around €30/tonne for carbon dioxide, reflecting the region’s ongoing strength in global climate leadership.
Further, a groundswell of the biggest global financial institutions (156 and counting), global central banks (Network for Greening the Financial System), global investors (Climate Action 100+) and leading global corporates (RE100+) are announcing net zero emission commitments, and pivoting investments, financing and insurance to make a post-COVID-19 green stimulus-led recovery the new reality.
It is paramount for India to protect and enhance its energy security interests, however, the country should not be blind to the accelerating momentum of the current technology-driven, global energy transition. The minister’s new coal proposals risk unviable investment into more high carbon non-performing or stranded assets that will almost inevitably need to be subsequently written off, thereby repeating lessons learnt over the last decade in India’s coal power, discom and banking sectors, and of ‘second life’ ‘white elephant’ projects globally.
Any highly capital-intensive greenfield, speculative investment in CCS, underground coal gasification (UCG), coal-to-gas, coal-to-oil, or coal-to-fertilisers projects, or any similar ‘second life’ pipedreams are most likely to be a clear repeat of similar historical investment mistakes by China’s coal giants (including China Coal, China Shenhua and Shanxi Lanhua). Or, in the worst case, they may replicate the environmental and economic disaster the now-bankrupt Linc Energy coal gasification project proved to be for Australian taxpayers.
Let’s see what the Projects & Development India Ltd pre-feasibility study concludes. Hopefully they will independently assess financial, water and environmental risks and not blindly accept the coal promotors’ false promises.
The wealth hazard of ‘second life’ coal was well illustrated by the 60% collapse over the last two years in the share price of Sasol of South Africa, the ‘world-leader’ in coal-to-liquids, now an obsolete technology proven to be a high cost fuel source.
No scientific proof
‘Second life’ coal proposals are high emission proposals, and as China found, usually have an associated high water use intensity. These proposals also lack almost any scientific or economic proof of success, yet carry dramatic and potentially irreversible environmental risks.
Rather than repeat the lessons of history, it is worth referencing that in 2016, the minister for business and energy Paul Wheelhouse MSP reported to the Scottish Parliament the findings of an independent expert examination of UCG led by Professor Campbell Gemmell from the University of Glasgow. The need for this review was clear given the “the shortage of reliable information” and global lack of scientific evidence on UCG.
The report concluded:
“Firstly, there are very few comprehensive or peer-reviewed studies examining environmental and health impacts. Where impacts have been documented, these have been from trials rather than from full commercial scale activity. Where the industry has operated, which is typically at a pilot or trial scale, there is emerging evidence of significant environmental impacts. This includes soil contamination and exposures of workers to toxins resulting from major operational failures. A number of failures in Australia have resulted in prosecutions being brought.”
In October 2017, the unconventional drilling ban was confirmed by the Scottish government, noting there was no social license to operate, given “99% of the responses were opposed to fracking and fewer than 1% were in favour”. Institute for Energy Economics and Financial Analysis (IEEFA) will have more to say on this and the false promises of other global ‘second life’ coal proposals in our new report set for publication in February 2021.
Coal Minister Pralhad Joshi is correct to state that India’s energy needs are set to grow significantly as sustained economic growth resumes, accentuated by Prime Minister Narendra Modi’s national electrification strategy, a critically important priority that is progressing strongly. And Minister Joshi is absolutely right to remind us that coal-fired power is the dominant source of electricity generation in India (64% of the first half of the 2020/21 total), noting also the clear downward trend in coal share – being down from 76% just four years earlier.
Priced at Rs 2/kilowatt hour, sustainable, zero emission domestic solar is below the marginal fuel costs alone of existing, domestic coal-fired power generation. As the International Energy Agency’s CEO Fatih Birol said in the 2020 World Energy Outlook, it is abundantly clear that “solar is the new king”.
Challenges for coal power ahead
Thermal coal still plays a dominant generation role while also providing a key balancing need in firming India’s electricity grid, ensuring reliability and grid stability. But the future is clear. Like all electricity markets globally, India will continue to utilise an ever-increasing share of low cost, domestic, intermittent renewable energy generation. Batteries will increasingly challenge coal power in the critically needed grid balancing role in years to come, as is already evident in the U.S. and Australia today.
Total coal use in India is set to peak and then plateau over the coming decade, at levels probably no more than 10-20% higher than current demand. While there is scope for domestic coal to progressively replace some 100 million tonnes per annum of imported thermal coal this decade, most import-coal-dependent coastal coal plants like Tata Mundra and Adani Mundra in Gujarat, and Adani’s expensive Udupi plant in Karnataka, are over 1,500 kilometres from domestic mines, making large scale domestic substitution logistically prohibitive and an entirely uneconomic proposition. It is more likely that these now stranded non-performing plants will close on the expiry of their uncommercial power purchase agreements.
India needs to accelerate investments in future renewable energy technologies, not reinvent history by investing in now obsolete ‘second life’ coal technologies of the past.
Tim Buckley is Director, Energy Finance Studies, Australia/South Asia for The Institute for Energy Economics and Financial Analysis.