At a time when the Central government is battling the problem of low coal stocks in over 50 power plants in the country, a study by Coal India Ltd (CIL) has listed out the headwinds impacting the coal sector, including the emergence of renewable energy as a viable key substitute, increase in the cost of compliance due to the strict regulatory environment, delays in getting requisite clearances and the resultant cost overrun. Alongside these, small-scale mining prevalent across the sector with limited mechanisation, low operating performance as compared to global peers and the likely emergence of imported coal as a viable substitute are among the other challenges.
CIL commissioned the study, titled ‘Coal Vision 2030’, to assess the future demand scenario for the coal sector in India up to 2030. The study also listed some of the numerous global and domestic events that have “intensified” the doubts on the future of coal: “COP21 (Paris agreement) commitments by India; apparent shrinkage in global coal consumption; apparent downward revision of the economic growth projections of India; tepid response to recent tranches of coal block auctions; NPA (non-performing asset) crisis, especially in the steel and power sector that are two major consumers of coal and important sectors linked to economic growth.” As on February 11, there were 52 thermal units that had less than seven days of coal stocks, according to data from the Central Electricity Authority.
These global and domestic events are likely to have a significant impact on the coal sector in India, according to the study. “Global coal prices peaked in 2008. Thereafter, the United States, financial market crisis, combined with slowdown in global trade, has made energy and coal markets lose their sheen globally,” it added. CIL produces almost 80 per cent of coal in India.
CIL is expected to close the current financial year with 500 MT production. In January, it told the power ministry that it would produce 513 MT of coal in 2018-19 and offer 12 MT via e-auction to meet the power sector’s demand. The balance amount to meet the power industry’s demand of 615 MT of coal would come from Singareni Collieries and captive coal blocks.
While talking about emergence of renewable energy as a key substitute for coal, the study specifically talked about the massive growth of Indian solar sector in last two years. The total capacity addition in solar over the last two years has been more than 8 GW, an increase of approximately 200 per cent in the installed capacity. “Efficient use of materials, improved manufacturing process, improvement in cell efficiency, and decrease in prices of solar inverters and other ancillary parts in the electrical system are expected to continue driving the competitiveness of solar,” the study noted.
One of the primary challenges of the renewable energy sector has been lack of viable energy storage solutions. Noting the development in storage solutions in the past few years, the study said that it would have “significant implications” on coal-fired power plants. “Battery storage cost has reduced substantially from over $1,000 per kWh to about $250 per kWh over the last few years. With increasing supply and advances in technology, battery cost is expected to go down further to approximately $50 per kWh by 2030. This may have significant implications on coal-fired power plants in terms of replacing the thermal capacity required to meet the peak demand,” it stated.
The study estimated that the regulatory framework for access and extraction of coal will continue getting stricter, leading to increase in the cost of compliance. In 2015, India migrated to auction as a mechanism for allocation of coal resources for extraction. “In the Indian context, where supply is deficit and end consumers have made significant investment in the end use plants, auctions are likely to result in bidding beyond feasible limits,” the study mentioned. It added that other aspects, which are likely to continue to get stricter, are land acquisition, resettlement and rehabilitation (R&R) and environment management.
About 50 per cent of CIL’s total production comes from 15 opencast mines having a total production of 279 MTPA (million tonnes per annum). Remaining 452 CIL mines produce only 274 MTPA, approximately 0.60 MTPA per mine. Similarly, in the case of Singareni Collieries Company Ltd, 83 per cent of total production comes from only 14 mines; remaining 48 mines are able to produce only 11 MTPA. The study noted: “Indian coal mining sector is still beset with relatively small scale mining with limited mechanisation/scale of equipment… Technology adoption in underground mining is even more limited. Approximately 87 per cent of the underground coal mines of CIL are either semi-mechanised or non-mechanised (manual).”
Kameswara Rao, leader (energy, utilities and mining) at PwC India told The Indian Express: “To an extent, adoption of modern mining technologies has actually improved, although a lot more can be done. The key challenge is fragmentation by number of companies and blocks, which if consolidated can help develop better common infrastructure and standardise equipment…This is a common trap that many operators fall into as they upgrade individual equipment. To get real productivity gains they have to simulate and redesign mine development, including procurement, processing and logistics.”
The study noted that the operating performance of the Indian coal sector is lower than its global peers. For instance, similar class of shovels in international mines are operated 40–50 per cent more hours annually than they are at CIL. “India’s coal mine productivity is much lower than the global standards. This is primarily because of limited use of modern mining methods and technologies and sub-scale mining operations,” said Debasish Mishra, head of energy and resources industry for Deloitte Touche Tohmatsu India LLP, adding that the “CMPDIL (Central Mine Planning and Design Institute Ltd) should develop technical collaboration with leading mining companies in countries such as South Africa and Australia to adapt and institutionalise latest technologies”.
The coal sector — which is regulated at several levels with the Central government, state governments and various local agencies involved in supervising the industry — is also facing problems due to delays in getting clearances. “Several approvals from multiple agencies are required for the commencement of mining operations. However, the process is not streamlined leading to delays and cost overruns. For example, in case of a Schedule II coal mine in Chhattisgarh, award of mining lease was delayed by four months from the planned date, ultimately leading to a delay of more than five months in commencement of production. Similar challenge was observed in another Schedule II coal mine in Jharkhand where the commencement of production was delayed by almost two years.”