With a service sector-led economic growth, the energy intensity of the Indian economy has been on the decline at a pace faster than the rest of the world (figure 1). The decline, according to the Ministry of Statistics and Programme Implementation, 2015, Energy Statistics has been 1.3 per cent, as against -1 per cent the world over (https://yearbook.enerdata.net/energy-intensity-GDP-by-region.html).
Despite this, the overall demand for energy is expected to continue rising in the near future due to several factors, which include:
The target of a 8.5 to 9 per cent annual growth in gross domestic product (GDP);
The aim to increase the contribution of the manufacturing sector to 25 per cent of GDP by 2025 from the current 15 per cent;
Increase in per capita usage of energy with greater economic prosperity and lifestyle changes;
Expansion in the energy distribution network to cover larger populace.
As of now, coal remains the single major source of energy despite a declining share, and accounts for 41 per cent of all energy consumed in 2013-14. In fact, coal and crude petroleum accounted for 80 per cent of energy consumed in 2013-14 (figure 2).
The dependence on coal is revealed to be even higher if we focus on the capacity for electricity
generation (table 1) and electricity production (figure 3). Almost 2/3rd of installed electricity generation capacity is coal based, and coal now accounts for almost 3/4th of electricity generated from conventional sources in India. In fact, after a two year fall in 2009-10 and 2010-11, the share of coal in electricity generation increased by 4.5 percentage points in the last four years. The left-over quarter is shared by petroleum (11.8 per cent), natural gas (10.2 per cent); and hydro and nuclear power (4.5 per cent ). The continued dependence on coal is also reflected in the less than 2 per cent annual growth in electricity generation from petroleum and natural gas as against a 3.9 per cent growth in thermal power generation over 2005-06 to 2013-14. Though hydro and nuclear power generation grew at a marginally higher pace of 4 per cent over the period, it hardly had any impact considering their low base. This in itself will ensure our continued dependence on coal for many years to come despite constraints in increasing coal production or raising efficiency in thermal power generation or the initiatives taken to diversify and increase power generation from nuclear and other renewable sources.
Policy makers are well aware of the pitfalls in over dependence on thermal power, and have been pursuing several alternatives. Renewable energy sources including solar and wind energy, small hydro projects of up to 25 MW, biomass power, urban and industrial waste based power, have seen a 16 per cent per annum growth over the past 4 years, expanding from around 18,500 MW in June 2011 to 32,000 in January 2015, as per the statistics handed out by the Central Electricity Authority’s various reports on installed generation capacity.
Wind energy has emerged as the frontrunner among these, with installed capacity exceeding 22,600 MW as on February 2015, and estimated on-shore potential exceeding 1 lakh MW. Grid connected solar power also expanded from a miniscule 8 MW in January 2010 to 3,400 MW in February 2015, with targeted installation of 22,000 MW capacity by 2022 under the Jawaharlal Nehru National Solar Mission as per the Ministry of New and Renewable Energy’s, Annual Report 2014 and Physical Progress Report 2015.
However, despite commendable expansion in renewable sources, the fast expanding demand for electricity will ensure continued dependence on coal, as reflected in the 2012 report of the Working Group on Power for Twelfth Plan, which shows an aggressive capacity expansion plan for the 12th (2012-17) and 13th plan periods (2017-22). In fact, planned capacity addition during the 12th plan works out to 95,485 MW. Despite the priority accorded to grid interactive renewable energy, hydro and nuclear generation under the Low Carbon Growth Strategy, the planned capacity addition from non-coal based sources will only be around 1/3rd at 32,790 MW.
One of the factors restricting the growth of non-coal based alternatives is the cost factor (table 2). Even the minimum tariff for wind energy at Rs 3.7 per unit is higher than the maximum tariff of Rs 3.2 per unit for pit head coal-based power stations. Similarly, tariff for solar power ranges from Rs 7.7 to 11.9 per unit. The estimated cost of nuclear energy is comparable to conventional sources, but expansion of nuclear generation capacity is unlikely in the face of considerable public opposition and investors dithering over disaster liability issues.
The projected expansion of thermal power generation during the 12th plan period implies an annual demand of 842 million tonne (MT) of coal for electricity generation, rising from 306 MT in 2005-06 to 427 MT in 2013-14. Apart from electricity, coal will also be in demand for the steel, sponge iron and cement sectors. Keeping in mind that the combined demand from these coal dependent sectors has grown at more than 4 per cent in the 2005-13 period, reaching around 600 MT by 2013-14, it is expected to cross 900 MT by 2016-17.
Table 1: All India Installed Capacity of Power Stations as on January 31, 2015
Table 2: Minimum and maximum tariff for alternate power generation based on types of generating station
Despite this overwhelming dependence on coal, the 3.7 per cent growth in domestic coal production has been trailing behind demand due to policy and other bottlenecks such as non-operationalisation of captive mines, subsequent cancellation of coal block allocation, and non-receipt of environmental clearances. This has resulted in a steady increase in net imports from 37 MT during 2005-06 to 166 MT during 2013-14. In 2015-16, power utilities alone will import around 73 MT of coal.
Overall domestic availability, though, is expected to improve with the successful auctioning of coal blocks. With companies now having to pay for coal blocks, they will have to operationalise mines at the earliest to recoup their investments. However, even though the auctioning system enhances transparency in the coal block allocation process, a few more steps are called for.
Firstly, the differentiation between coal blocks into those for electricity generation and non-electricity captive use allows for differential pricing, leaving scope for diversion of mined coal into non-intended use. This also limits the number of bidders per block.
Secondly, private participation is still limited to only captive users from the iron and steel, power and washeries sectors, with independent private merchant miners not being allowed. As a result, reliance on public sector behemoth Coal India continues despite its failures in raising production levels. In fact, in 2013-14, it could only meet 86 per cent of fuel supply agreement (FSA) commitment to power utilities (other than the National Thermal Power Corporation Limited), with production expected to touch merely 615 MT by 2016-17 from 482 MT in 2013-14.
Thus, to sustain India’s long term economic growth by securing the country’s energy needs, rapid expansion in coal production is needed, along with complementary enhancement of efficiency of the thermal power supply chain.