India, it is rightly said, is a land of contradictions. It is home to hundreds of millions of people in abject poverty, and it has a space program that has put satellites around the Moon and Mars. It dominates every opponent in the game of cricket, but it has only won as many Olympic medals in the last 70 years as US swimmer Michael Phelps has on his own. It produces the largest number of engineers and doctors of any country, yet it doesn’t file as many patents as Germany—a country less than a tenth its size.
Nowhere is that contradiction clearer than in its energy use. India is highly vulnerable to climate change, and yet 55% of all its energy comes from burning coal. More importantly, over the last 30 years, India has quintupled its annual use of the dirtiest fossil fuel. There’s a chance that if other countries met emission targets and India didn’t cut its coal use, we’d still blow past the carbon budget and bring on climate catastrophe.
In this contradiction, India is not alone. Much of the developing world continues to choose the cheapest source of energy it can find—even if it is coal. For most poor countries, mitigating the future impact of climate change is less important than reaping the immediate gains of growing their economies, getting rid of poverty, and providing millions of people with a decent quality of life.
So India can’t afford to give up coal. Yet its supply of new coal power plants is, for a number of complicated reasons, starting to dry up, and costs for coal-based energy are rising.
All that has put a damper on India’s coal consumption at the same time that its renewable capacity is growing. The government’s goal to build 175 GW of renewables capacity by 2022, which many laughed off as too ambitious, might just be within reach.
But India still has to meet its citizens’ growing demand for energy—which means coal’s demise is not on the horizon just yet. Engineering tweaks may have made solar and wind power the cheapest source of electricity in the country, but that’s only true in some regions, and only when the sun shines and the wind blows.
As the rate of growth of India’s coal consumption slows, other developing countries would do well to pay attention to how India balances its short-term economic needs with support for a nascent—and potentially lucrative—renewables industry. To understand how India will make its way through this next chapter, we need to think about what drove the growth of India’s coal industry to this scale in the first place.
- The socialist influence
- Clearly defined coals
- Coal everywhere
- The big players
- The boom and the bust
- It pays to be flexible
- The de-addiction program
India’s coal industry started long before it was called India. The region’s first coal mines were opened in 1774 by the British-run East India Company. But the industry’s real growth spurt—when it began producing 1 million metric tons annually—had to wait until the 1850s, when the British brought steam-powered locomotives and railways to their colony. Coal production steadily increased as the railway network grew. Each of the world wars led to another boost, as the British forcefully deployed colonial subjects and resources in battle.
By the time India achieved independence in 1947, decades of oppressive rule had left every sector of the economy in bad shape. During the socialist era that followed, India adopted a Soviet-style system of five-year plans to kickstart the economy. The second of these, in the 1950s, focused on developing the steel industry—and thus coal mining, which provided the coking coal needed to make steel.
That led to the creation of the National Coal Development Corporation in 1956, which merged the coal mines owned by the state-owned railways. Then, in 1957, the parliament passed the Coal Bearing Areas Act, which gave the government the right to acquire land that might hide coal beneath it. It’s among a handful of land acquisition acts that the government uses even today to exert its ownership of the country’s coal reserves.
During a period of modernization in the 1970s, prime minister Indira Gandhi nationalized nearly all coal mines, organized them under different subsidiaries, and gave control of the subsidiaries to one authority: Coal India Limited (CIL). This socialist era, which lasted until the late 1980s, also saw the government nationalize steel plants and the railways—some of the country’s biggest consumers of coal.
While India kept growing its economy, state-controlled pricing and heavy government regulations burdened businesses with red tape. Socialism’s limits had been exposed. In 1991, as the Soviet Union was dissolved, India found itself on the verge of bankruptcy. The World Bank and the International Monetary Fund provided loans to the country—and in exchange, the government was required to liberalize the economy.
Over the next decade, with the enactment of the Electricity Act of 2003, India allowed private companies to build power plants and operate a limited number of electricity grids. CIL turned itself around and became profitable, eventually listing on an Indian stock exchange with a blockbuster initial public offering—the second-largest in the country’s history. The state-owned National Thermal Power Corporation (later known only by its acronym, NTPC) went public too.
But India’s coal industry still operates under the shadow of its socialist past. The government owns majority stakes in NTPC and CIL and depends on their dividends to fill its coffers. While the companies are profitable, they are not always able to meet India’s growing energy demands. And almost all of the electricity grid is run by fully state-owned companies, which still have big reliability problems.
Closing the history chapter on coal isn’t going to be easy.
Anthracite: It’s the highest grade coal, containing between 80% and 95% carbon. Only available in small quantities in the union territories Jammu and Kashmir.
Bituminous: Medium-grade coal, containing between 60% and 80% carbon. Widely available in the states of Orissa, Jharkhand, Chhattisgarh, West Bengal, and Madhya Pradesh.
Coking coal: A type of bituminous or anthracite coal with low ash content. It can be heated in the absence of air to make coke, which is used to convert iron ore into iron for steel production. While India has some reserves of coking coal, it mostly imports what it needs.
Lignite: Often brown-colored coal, containing between 40% and 60% carbon. Found in the states of Rajasthan, Assam, and Tamil Nadu.
Peat: Contains less than 40% carbon. If left alone for millennia, it will eventually turn into some type of coal. It’s not typically harvested in India.
The demand for India’s coal comes mainly from power plants, rather than industries like concrete and steel. Those plants don’t have to meet the same demand as a developed nation: An average Indian resident consumes a tenth of the electricity used by an average US resident. But that’s changing fast as India gets richer, more people get access to electricity, and supply becomes more reliable.
In 2001, more than half of all homes in Indian villages did not have access to electricity. Today, the government says it has provided nearly all of them with a connection (though a majority still face daily power cuts of 12 hours or more).
Acknowledging that India’s electricity consumption is set to double over the coming decade, in 2017 prime minister Narendra Modi committed India to an ambitious renewable-energy goal: 175 GW of solar and wind power by 2022 and 450 GW by 2030. In the last five years, grid-connected solar power capacity in the country has increased nearly 10 times to 31 GW.
But that renewable capacity will not be enough to meet India’s growing electricity demand, according to the Central Electricity Authority (CEA), which advises the government on policy and planning. The country will still need plenty of coal.
In the financial year ending March 2019, coal in India generated about 1,000 TWh of electricity—more than 75% of the country’s total generation. In 2030, the CEA estimates coal will provide 1,254 TWh of electricity—about 50% of the projected total. Even in the most optimistic forecast, assuming low growth in electricity demand and high adoption of renewable energy, Brookings India estimates that coal will need to supply at least 1,090 TWh annually until 2030.
Projections are useful. But it’s questionable whether India’s coal supply will keep up. Even today, domestic supply of coal isn’t able to meet India’s demand for electricity. It’s not because India doesn’t have enough coal: At current consumption rates, the country has access to more than 100 years’ worth. But the industry’s production is constrained by a number of bottlenecks.
Thanks to cumbersome approvals processes and local opposition, it can take years after a mining operator has successfully bid for a coal block—a piece of land containing coal reserves—to start to dig. And even when digging starts, much of the coal is mined far from where it needs to be burned. India’s coal reserves are mostly in the central and eastern parts of the country, so coal-powered plants in the northern, southern, or western regions have to pay to transport their fuel, mostly on the country’s railways.
Coal India Limited officials say they can produce more coal, but are stymied by an insufficient number of train wagons. The Indian Railways passes the buck, blaming the country’s wagon manufacturers for a backlog of pending orders and CIL for production bottlenecks.
Assigning blame is often moot: After adding the cost of transport to Indian-mined coal, it’s cheaper for some coal-powered plants to ship higher-quality coal from Indonesia or South Africa.
The reality is that small or big problems at every level of the coal supply chain contribute to production that can’t keep up with demand. The upshot: India’s coal imports are steadily rising. In 2017, imports amounted to $21.93 billion of the total import bill of $417 billion.
Sky-high imports aren’t just for power-generating coal: They also include coking coal. After China, India is the world’s second-largest producer of steel and cement. The cement industry can easily get by on domestic coal, as most of India’s reserves are lower-quality bituminous coal, which is good enough to produce heat in cement plants. But India’s many steel plants need coking coal.
“The fossil fuel hit that India’s economy carries shows up in the current account deficit and the weakening of the currency. The currency then feeds into the inflation rate. The inflation rate feeds interest rates,” says Tim Buckley, a director at the Institute for Energy Economics and Financial Analysis. “So if India doesn’t deal with that, it’s just going to choke the Indian economic growth story.”
In a bid to increase competition and reduce the country’s dependence on imports, in September 2019 the government under prime minister Modi announced a push toward privatization: Private companies and multinational firms would be able to apply to buy a license to run mining projects and sell coal.
The effort is facing opposition from trade unions, along with difficulties securing international financing. And the move may not attract global mining giants. India’s coal growth story isn’t looking bright.
- Coal India Limited – The country’s largest coal-mining company
- NTPC – The company with the largest portfolio of coal power plants
- Indian Railways – An unlikely but crucial player in India’s coal industry
- Adani Group – The new kid on the coal block
- Tata Power – The country’s oldest private electricity generator
CIL is the largest coal-mining company in the world, producing about 10% of global output and more than 60% of the coal India consumes. In the financial year ending March 2019, the state-owned company mined 607 million metric tons of coal, all of which stayed in the country (the product is too low-grade to be a valuable export). Another way to measure CIL’s impact is by its greenhouse gas footprint: 1.71% of total global emissions since 1965.
Since CIL was created in 1973, it has remained the only miner that can sell coal in the country. But that doesn’t mean it’s always been successful. For the first two decades, the firm racked up losses.
As India’s demand for coal grew and the government continued to infuse money, though, CIL’s monopoly position eventually paid off. The company turned its first profit in 1992, and it continued to make profits for the next two decades as economic growth increased coal consumption. Its 2010 IPO attracted the highest number amount of bids in the history of the Indian stock exchange.
CIL is a cash cow for the government, which has a 69% stake in the company—in the financial year ending March 2019, its profits stood at $24.61 billion. The price of coal is officially decided by CIL’s board, though the government maintains informal control. The trade-off is between keeping the rates low while still making sure CIL is profitable so that it can expand to meet India’s rising coal demand.
To support CIL’s flagging production, the government is planning to give the company access to an additional 45.5 billion metric tons of coal reserves. And the firm is looking to mining opportunities in Australia and Mozambique. But it’s still not enough. Modi’s government is primed to intervene and disrupt the company’s long-held monopoly as it moves “from an era of monopoly to competition.”
- Coal reserves: 88.4 billion metric tons
- Market cap: $17 billion
- Workforce: 300,000
NTPC is India’s electricity giant. Its massive fleet of coal power plants—primarily supplied by CIL—generates over 20% of all the country’s electricity.
The company went public in 2004, but up until that point it had functioned as an arm of the government like CIL. Since the IPO, the government has periodically divested its shares, but it still owns a majority stake of 56.4%.
As a result, NTPC has better access to capital from state-owned banks, a more secure supply of coal from CIL, and the ability to easily navigate a heavily-regulated business environment. With a revenue of $12.96 billion in the financial year ending March 2019, NTPC is the third-most profitable firm owned by the state (CIL is the sixth-most profitable).
Those funds, in part, are being invested in ramping up the company’s non-coal capacity: NTPC branched out into natural-gas power plants and hydropower in the last decade, and built its first solar farm in 2013. The generator aims to raise the share of renewables to 30% of the fleet by 2032.
But coal will remain the company’s mainstay for the foreseeable future. Nearly 90% of NTPC’s current capacity is coal-based, and the firm is building 11 GW (or 14.7 GW if subsidiaries and joint ventures are included) of new coal power plants. The Indian government has also allotted NTPC 10 coal mines to secure better fuel supply, with which NTPC aims to become the second-largest coal miner in the country after CIL.
- Coal-fired capacity: 44.9 GW (51.4 GW if joint ventures are included)
- Renewable capacity: 900MW
- Coal reserves: 7.3 billion metric tons
- Market cap: $17 billion
Indian Railways, one of the world’s largest employers, is an unlikely but crucial player in the coal industry. The government-run public transit system uses freight traffic to subsidize passenger travel—and coal makes up the lion’s share of its freight.
Most of India’s coal mines are located in the central and eastern regions of the country, and trains are the primary mode of transporting fuel to power plants, which can sometimes be more than 1,000 km (600 miles) away. Some companies also rely on the rail network to ferry imported coal from ports—mainly in the southern and western regions of the country—to power plants.
A shipment can arrive days late, and on the way, mafia members will often steal some of the coal from the roofless wagons. But power plants don’t have many alternatives: Transporting large quantities of coal on long-haul trucks is even more expensive than by rail. In the financial year ending March 2018, more than 60% of all the coal consumed in India was transported on trains—and correspondingly, 30% of the railways’ revenue of $25 billion came from coal transport.
That’s fine for now, but growth of coal freight is bound to slow. Most of the country’s new power plants are being built closer to mines, so they can rely on short rail networks, trucks, or even conveyor belts to transport their fuel. And states like Rajasthan and Gujarat, which don’t have coal mines nearby, are deploying large-scale renewable energy. Sooner rather than later, the railways will need to develop new sources of revenue.
- Coal freight in financial year 2018: 555.2 million metric tons
- Length of the special rail network being built mainly for coal: 1,839 kilometers
- Price of transporting 1 metric ton of thermal coal over 1,000 km: $28
A new kid on the block, Adani has quickly become one of the most diversified players in India’s coal and electricity generation industry. The conglomerate owns coal-fired power plants, transmission networks, a distribution utility, solar and wind farms, and a solar panel factory—in addition to operating coal mines.
Gautam Adani, who founded the group in 1988, grew the company by operating the Mundra port on the western coast of India—a common entry point for coal imports. Adani set up its first coal power plant there in 2009, and has since become the largest private electricity generator in India.
Today, Adani is also building up its electricity infrastructure, which it aims to double by 2022. Last year, the group acquired one of the country’s few private distribution utilities, which caters to 3 million customers in the suburbs of Mumbai. Together, its transmission and distribution businesses generated revenue of $10 billion in the financial year ending March 2019.
While Adani is in the process of building more than 8 GW of coal power plants, it is also among India’s biggest and fastest-growing renewable-energy companies. The group hopes to build 15 GW in renewable capacity by 2025—about 10% of the country’s goal. Renewables are going to have a bright future in the country, and Adani (like other private players) wants to ensure it’s a part of that game.
It may well lead the way: Adani is known for getting things done quickly despite the highly-regulated nature of the industry. It has friendly connections with high-level bureaucrats, a number of whom have joined Adani companies after retirement. The group goes wherever it sees an opportunity to make money.
For now, that’s in coal mining, especially as the Modi government prepares to allow private firms to mine coal for sale. While Adani waits on bureaucrats to execute that plan, it has pioneered the “mine developer and operator“ model. Because it can’t own mines, it instead has contracts to run mines on nine coal blocks that belong to state-owned firms. One expert calls the strategy “privatization by stealth.”
- Coal-fired capacity: 12.5 GW
- Renewable capacity: 2.3 GW
- Coal reserves for which Adani has a mining contract: 2.84 billion metric tons
Tata Power is India’s oldest private electricity generator. An arm of the salt-to-software conglomerate Tata Sons, it launched in 1915 with a hydro power project. Today, coal plants make up nearly 70% of its fleet—and until recently, it was India’s biggest private coal power plant owner.
Adani took that leading position in 2014, and Tata Power appears ready to give it up. The company isn’t building new coal plants for now, and has signaled that it won’t build any in the future either. Instead, the firm is focusing on acquiring the many existing plants facing bankruptcy.
Like Adani and most private energy providers, Tata Power has been ramping up its renewables. In 2016, the firm acquired Welspun Energy, one of India’s largest clean energy companies. Since the acquisition, Tata Power has also rapidly expanded its solar and wind capacity, which now forms 23% of its overall fleet. The firm aims to raise its renewable capacity to somewhere between 15 GW and 25 GW by 2025.
Also along with Adani, Tata Power was among the first private companies to enter the power transmission business. The firm also runs distribution utilities in parts of New Delhi and Mumbai, the largest cities in the country, catering to 2.3 million customers. And it is investing in solar-panel manufacturing and installation to capitalize on India’s renewable ambitions.
- Coal-fired capacity: 7.23 GW
- Renewable capacity: 2.55 GW
- Tata Power market cap: $2.5 billion
The story of the big players in India’s coal industry is one of countervailing forces. NTPC isn’t building as many coal power plants as it used to, but CIL is still dealing with a growing demand for coal. Adani Group is finding success in the “mine developer and operator” model to mine coal, but it is also hedging its bets and investing in renewables. Tata Power has a renewables target and has vowed to not build any more coal power plants, but it is open to acquiring those going bankrupt.
The reasons why can be found in the past decade of growth in India’s energy industry.
In 2007, the Central Electricity Authority predicted that India’s electricity demand would reach nearly 1,400 TWh by 2017. That estimate came four years after passage of the Electricity Act, which supported growth by allowing private companies to build power plants without a license from the government.
It spurred a boom that saw India’s coal power capacity more than double in 10 years.
By 2017, however, distribution utilities had only bought 1,235 TWh of that capacity—about 11% less than projected. That meant the country was left with a mess of unprofitable coal power plants: 40 GW of “stressed” coal power projects, according to the Indian government. “The planning under previous governments was very poor,” said Shailendra Kumar Shukla, chairman of Chhattisgarh State Power Distribution Company, a state-owned utility. “After delicensing in 2003, anyone has been able to set up their own power plant.”
Only two out of 34 of these stressed projects are not owned by private firms. “Private developers and state-owned banks—that was the nexus,” says Thomas Spencer, fellow at The Energy and Resources Institute, a non-profit based in New Delhi. “It was a period of exuberance, and due diligence was also definitely lacking.”
Banks agreed to fund many power plants that had not secured a long-term deal to sell their electricity to a utility. Without such a contract, a power plant can sell on the energy exchange, but volumes traded there are less than 10% of what is supplied via agreements. “The projects that didn’t have a power purchase agreement should never have been given the loans,” said Joe Athialy, executive director of Centre for Financial Accountability, a non-profit based in New Delhi.
While the full extent of the economy-wide crisis is not publicly known, the outstanding debt from the stressed coal plants alone is more than $160 billion.
Despite the fact that India’s long-term ambition and need is to get away from coal, it can’t do that just yet. Technology leaps, market fixes, and policy changes can help push the brakes harder on India’s growing coal use. But they will have to do so in the face of India’s bumbling bureaucracy, which combines weak governance, poor planning, and timid execution with a healthy dose of corruption.
First, many coal power plants need a lifeline. Even today, over half of India’s stressed coal power capacity still don’t have an agreement with a utility. Those that have power purchase agreements have found it difficult to secure fuel.
A few of the stressed coal power plants have been acquired by companies like Tata Power and Adani Power during bankruptcy proceedings. But the future of the others looks gloomy. The decade also saw rapid declines in the cost of solar and wind power, which has made them competitive with coal.
As a result, even the existing fleet of coal power plants now runs far below its theoretical maximum capacity.
Second, in response to market conditions, every coal player is revising their plan. NTPC built only 1 GW of new coal capacity in the last financial year, against a target of 4 GW. Coal capacity additions, after subtracting for retirements of old plants, have also slowed down to their lowest levels in recent decades.
Third, some are looking toward alternative uses for coal, like in the “peaker” plants that run only during peak demand for electricity—typically between 4pm and 7pm. These plants charge large amounts of money to recoup the cost of running only a few hours each day, so they can be uniquely profitable.
Natural gas is the fuel of choice for such power plants, because it’s relatively simple to dump more gas into a boiler. But some Indian companies are looking to use coal power plants as peakers, according to Buckley. These will become even more important as the addition of household rooftop solar causes peak demand to shift.
For coal to fill up the gaps when the sun doesn’t shine and the wind doesn’t blow, what’s needed is not a technological fix but a systemic one. If power plant operators knew an hour in advance that they needed to ramp up power production, they will have no problem increasing output. To get the power-plant operator that information, however, will require the grid operators to implement a system that allows for hourly purchasing—which currently doesn’t exist in India.
What happens to coal in India matters to the rest of the world. India is now the second-largest producer and consumer of coal in the world, ahead of the US but behind China. Climate change only cares about the total amount of greenhouse gases dumped into the atmosphere—so if India were to go China’s way, we would all be toast.
But climate diplomacy isn’t that simple. Any changes that will help the world also need to be made in an equitable manner. On a per capita basis, China consumes four times as much coal and the US consumes three times as much as India does. Many would argue that the coal India consumes today is its historic right, given how rich countries like the US and the UK used dirty fuels to power their own development.
Regardless of how the geopolitics play out, technological progress will ensure that India’s total contribution to climate change will likely be small compared to the US or China—in absolute terms or on a per capita basis. India and the rest of the developing world has access to cheap clean-energy technologies and energy-efficiency measures that didn’t exist just two decades ago.
Fortunately, India also recognizes the threat of climate change, as the number of natural disasters it faces each year continues to increase. It has signaled that it wants to be a part of the solution—apart from its renewables goal, it is looking to electrify its vehicle fleet, improve energy efficiency, and cut agricultural emissions.
In any case, India’s use of coal would be facing headwinds even without the strong negative incentives of the ongoing climate crisis. The government’s trade deficit continues to balloon as coal imports grow. International banks are looking to exit coal altogether, Indian private banks are no longer lending to the coal sector, and even Indian public-sector banks have become wary of coal investments. The costs of renewable energy continue to plummet. Most new jobs in the energy sector are now being created in the renewables sector rather than in fossil fuels.
And there are also non-economic forces. India’s air pollution problem, which coal contributes to, keeps getting worse. The opposition to new coal mines that trample over tribal peoples’ rights and shrink biodiversity hotspots is growing. Its citizens are becoming more aware of the importance of addressing climate change.
Developing countries can learn from this experience. They are likely to face similar disruptive technological, economic, and climate forces, but they could avoid some of the mistakes India has made and embrace the changes it has made to adapt. What’s happening in India now makes it possible to clear the cloud of pollution and point toward a cleaner future.