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Orderly Transition From Coal to Renewables

Context

  • Following the Ukraine-Russia war, commodity prices, particularly energy prices, have risen globally, raising concerns about energy security.
  • Additionally, in 2021, India’s thermal power plants had an average of four days’ worth of coal stock against a recommended level of 15-30 days, with a number of states expressing concerns about blackouts due to the coal shortage.
  • In addition, for the first time since 2015, Coal India imported the fuel in 2021 for use by state and private power generation companies.

Relevance

GS Paper – 3– Mineral & Energy Resource, Energy Security, Location & Distribution of the Industries, Distribution of Key Natural Resources

Mains Question

What are the main types of coal in India? Discuss various issues concerning coal mining in India. (150 Words)


India’s coal scenario

  • India has the fourth-largest coal reserve in the world. It is the world’s second-largest producer of fossil fuel after China, and it is home to Coal India, the world’s largest coal miner, which accounts for 80 percent of the country’s domestic output.
  • The country generates more than 75% of its power from coal and is the world’s third-largest electricity producer. 
  • The annual power demand will grow at the fastest rate in at least 38 years, according to the Ministry of Power. 
  • The mineable capacity of already allocated coal blocks is approximately 15% to 20% greater than the expected demand in 2030. Coal India, the state-owned company, has stated that it intends to increase domestic production to 1 billion mt coal by fiscal year 2023-24.

India’s coal industry has a long history

  • The East India Company began commercial exploitation of the Raniganj Coalfield in West Bengal in 1774, launching the Indian coal industry.
  • The National Coal Development Corporation was established in 1956 to further improve the sector.
  • The Coal Mines (Nationalization) Act of 1973 was passed in order to nationalise all coal mines in India. In 2018, it was repealed.
  • The Coal Mines (Special Provisions) Act, 2015, allowed private players to re-enter the sector. It allowed for the auctioning of coal mines based on the highest bid per tonne.

Coal Classification

Coal is derived from organic matter such as wood. When large areas of forest are buried beneath sediments, the wood burns and decomposes as a result of heat from below and pressure from above. The process produces coal but takes centuries to complete.

Coal can be classified according to its carbon content and time period.

It can be classified into following types based on its carbon content:

  • Anthracite is the highest quality coal with the highest calorific value and contains 80 to 95 percent carbon. It has a slow blue flame and is found in small quantities in Jammu and Kashmir.
  • Bituminous: It has a low moisture content, a carbon content of 60 to 80 percent, and a high calorific value. Bituminous deposits can be found in Jharkhand, West Bengal, Odisha, Chhattisgarh, and Madhya Pradesh.
  • Lignite contains 40 to 55 percent carbon and is often brown in colour with a high moisture content, producing smoke when burned. Lignite deposits can be found in Rajasthan, Lakhimpur (Assam), and Tamil Nadu.
  • Peat is the first stage of the wood-to-coal conversion process, with a low calorific value and less than 40% carbon content.

Policy Initiatives in India’s Coal Sector

  • Policy declaration: The Coal Minister announced in February 2020 that the country would stop importing thermal coal in 2023-24.
  • NCI (National Coal Index): This index was launched in 2020 to serve as a benchmark for revenue-sharing contracts that are executed following coal auctions. It reflects the change in coal price level in a given month relative to the fixed base year (2017-18).
  • Reason for initiating NCI: The NCI was required because the wholesale price index (WPI) for coal does not include imported coal.
  • Involving the private sector: A significant effort has been made to allow commercial mining in order to encourage the private sector to produce more coal. In the last two years, approximately 50 contracts have been finalised following preparatory action.

Increased domestic coal production is critical

  • Global price increase: The WPI for coal has been stable at around 131 for the last six months. During the same time period, the NCI increased from around 165 to around 238, reflecting the sharp rise in international coal prices.
  • Reducing inflationary pressures: In response to global coal price increases, the domestic coal industry increased coal production by more than 30% from April to June 2022, helping to reduce inflationary pressures in the economy.
  • Protecting the domestic economy: Increasing domestic coal production may help reduce the domestic economy’s exposure to price volatility in international markets.
  • Lower costs: Imported coal is five times more expensive than domestic coal.
  • Ripple effect: Oil and gas account for more than 80% of India’s total energy revenue of approximately $94 billion, primarily in the form of taxes and duties, with coal and electricity accounting for approximately 16% and renewable energy accounting for less than 1%.
  • As a result, coal mine closures will have a knock-on effect on local economies and services like health and education.

Ineffective single point of view

  • Excessive emphasis on renewables: India, the world’s second-largest coal producer, aims to build 500 gigatonnes (GW) of renewable energy capacity by 2030, up from about 150GW currently, and has pledged to achieve net-zero climate emissions by 2070.
  • Increased fiscal burden: According to the renewable energy ministry, India needs to invest $20 billion to $27 billion per year in renewable energy to meet its 2030 target.
  • Structured path: As coal is unavoidable in the near future, the path to 500 GW of renewables must be gradual, ensuring an orderly transition. Looking at coal solely through the lens of GHG emissions will provide a myopic view of energy requirements for a growing economy like India.

Increasing domestic coal production much more

  • Sensitization: To meet rising energy demand, the financial community must be made aware of the importance of increasing domestic coal production.
    • Specific policy instructions: The Ministry of Power recognised the need to increase coal-based generation in the country in its draught National Electricity Policy, which was released in May 2021. However, the significance of domestic coal-fired generation was not articulated clearly, and the policy has not yet been finalised.
    • The requirement for a regulator: Due to the fact that current arrangements only apply to the public sector, a regulator acting as a single point of contact for the industry is required to address the issues and assist new private commercial miners in overcoming future problems.
    • Diversification and quality: It is necessary to increase domestic coal production while also diversifying the production base. This must be accompanied by efforts to improve coal production quality.
    • Addressing cross-subsidization: The undue financial burden placed on the coal sector as a result of various cross subsidies must be addressed, as high coal and coal-based generation prices will only encourage imported coal and expose the country to price risks posed by international energy prices.
  • In order to increase coal production, a more holistic approach to environmental, social, and governance (ESG) criteria is required.

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October 2022
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