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Sustaining India’s Coal Based Energy System
A one percent improvement in thermal efficiency in India’s power plants translates into a reduction in annual CO2 Emissions of over 170 Million Tonnes (equal to the total emissions of Netherlands).
If ‘sustainability’ can be defined as a process that can be continued indefinitely or a course of action that does not include within itself the seeds of its own end or defeat 1, the Indian coal based energy system is definitely not sustainable. It is unsustainable not only because it is unable to meet India’s growing energy demands but also because it is among the most inefficient in terms of productivity. The administrative, technical and economic inefficiencies in the sector which transcend the entire value chain - from coal mining to power generation – are slowly and steadily eroding the sustainability of the Indian coal sector.
Coal accounts for over 38 percent of India’s primary basket followed closely by non-commercial energy sources such as fire-wood and animal dung which account for over 26 percent. Hydrocarbons (oil & gas) account for 30 percent while hydropower contributes less than 5 percent. Nuclear power, wind and other renewable energy sources contribute less than 1 percent of India’s primary energy needs. If only commercial energy is taken into account, coal accounts for over 50 percent of India’s energy basket.
Over 75 percent of electricity is currently generated in coal based thermal power plants and that share is projected to remain the same for the next two decades despite the expected volume increase of over 4 to 5 times.
Coal Resource Management
Given that India’s objective is to increase coal based generation capacity from about 80 GW today to about 300 GW by 2032, it is critical that irreversibility – loss of coal resources that cannot be recovered - is minimized wherever possible to ensure long term sustainability. However an overemphasis of open cast mining since the nationalization of the Indian coal industry has meant that India has rendered some of its coal resources unrecoverable . Ideally a ratio of 30:70 or not less than 40:60 ratio of underground to opencast coal production must be maintained for fully utilising available coal resources. The ratio in India today has fallen to a deplorable 10:90 from 30:70 in 1975. This is a by-product of a policy that prioritised economic growth and electrification over sustainable development of India’s coal resources.
A cursory reading of India’s Plan documents from the Fifth plan period onwards reveal that the increased emphasis on coal as fuel for power generation began in the 1970s as part of the country’s response to the increase in global crude oil prices. During the Fifth Plan period (1974-79) the outlay for the coal sector was increased to INR 1025 crores following the recommendations of the Fuel Policy Committee formed after the first oil crisis in 1973-74. This was a ten-fold increase over the outlay during the Fourth Plan period.
The Sixth Plan document (1979-84) recommended a strategy of ‘self reliance’ based on coal, hydropower and nuclear energy to reduce the economy’s exposure to crude oil prices. Even though the document cautioned that in per capita terms India’s coal resources were small compared to that of countries like USA, Russia and China, implementation of the strategy of ‘self-reliance’ skewed in favour of coal at the expense of hydro power. This was in spite of the Plan documents pointing out the risk of increased foreign exchange exposure on account of import of coal powered generators.
In 1966, hydro power and coal accounted for 45 percent and 48 percent respectively of a total installed capacity of about 9 GW. By 1990, the share of coal based generation capacity increased to 64 percent while the share of hydro power dropped to 28 percent of a total installed capacity of about 63 GW. Today coal accounts for over 76 percent of electricity generated out of a total capacity of about 170 GW.
Out of our proved coal reserves of over 200 billion tonnes only a third may be recoverable if opencast mining is pursued at the cost of underground mining. Underground mining is risky, complex and 2 to3 times costlier than open case mining but it is clearly a preferred option if quality and sustainability – both of the coal resources and the surrounding environment - are the deciding factors .
Productivity of Indian Coal Mines
India's total hard coal resources, to a depth of 1200 metres, are estimated at 255 billion tonnes. In contrast to China, coal in India is found mostly at relatively shallow depths. About 60 percent of these resources lie within 300 metres of the surface, making them accessible through surface mining techniques. More than 85 percent of coal production comes from over 170 opencast mines. By international standards, the equipment employed is not the most productive, being of relatively small size. There are around 390 underground mines, typically labour-intensive, bore and pillar operations with less mechanization than would be expected given India's position as the world's third-largest hard coal producer.India has so far been unsuccessful in adopting the more productive long-wall mining technology. This will be necessary to economically extract coal reserves below 300 metres.
Though Coal India is counted as the world's largest coal mining company by manpower and output with almost 380,000 employees and 430 million tonnes of coal production at the end of 2010, the size of its manpower is in fact its primary weakness. The output per miner per annum in India varies from 150 to 2650 tonnes compared to an average of around 12,000 tonnes in the U.S. and Australia. Productivity at Indian mines is low largely because of over-manning, poor working methods and low equipment capacity.
For example, at opencast mines, some 170-tonne trucks are used but many are much smaller. At the most efficient mines elsewhere, trucks with up to 380 tonnes capacity are employed. A voluntary retirement scheme, closure of uneconomic mines, prioritised investment and improved equipment utilisation rates have started to contribute to higher productivity of up to 2650 tonnes per man-year but the average productivity of Indian coal mines remains at a low of 700 tonnes. Low productivity of Indian coal mines is a barrier to investment in the sector which is vital for its sustainability.
Meeting Demand from the Power Sector
Of the 78 GW of new power generation capacity planned during the 11th plan (2007-12), sixty nine percent is coal based while the new hydropower capacity planned is only 16 GW which represents twenty one percent of the total proposed generation. To supply coal to India’s power generating plants, India enforces a nationalised coal allocation system with the objective of ensuring that coal is available to all five regions. These entitlements (commonly referred to as ‘coal-linkages’) are a form of contractual agreements that assure secure supply of coal for a fixed duration. The contracts specify the quantity of coal that a power plant can withdraw over a specified period of time.
This mechanism of allocating coal has proved to be inadequate in meeting demand from the power sector which has outstripped supply by over 10 percent. Many coal based power plants including those owned by the State such as those belonging to the NTPC have had to shut down power generation on account of inadequate coal supply. Perennial shortages of power on account of coal shortages will negatively affect the sustainability of economic growth rates of over 8 percent. The sector is increasingly turning to imported coal to meet its growing needs. Imported coal already meets over 10 percent of demand and its share is projected to grow to over 40 percent by some estimates. Increasing dependence on imported coal will expose the poorly equipped power sector to the vagaries of international markets which will translate into an increase in the average price of electricity in India.
Sustainability of Coal Based Power Generation
Thermal power generators in India perform well below global bench-marks in terms of thermal efficiency with efficiency levels of 27 to 30 percent compared to 37 percent in OECD nations. Widespread adoption of efficient coal technologies will extend the life of domestic coal, reduce carbon emissions and lower costs of electricity. An improvement of just 1 percent in efficiency can reduce coal consumption by 3 percent which translates into a reduction in annual coal consumption by ~ 100 Million Tonnes. This will lead to a reduction in annual CO2 emissions of over 170 million tonnes (equal to the total emissions of Netherlands).
A variety of technical and institutional factors such as poor quality of coal, low Plant Load Factor (PLF), age related deterioration, lack of maintenance, ineffective regulation, absence of competition and dubious tax policies and high rail transportation costs contribute to India having one of the highest production cost for electricity in the world in Purchasing Power Parity (PPP) terms. Such a price level, which is actually a form of inefficiency tax on the customer, is unsustainable from economic as well as environmental considerations.
The inefficiency tax erodes the competitiveness of India’s manufacturing industry which in turn negatively impacts India’s growth prospects . The lack of incentives for efficiency in the sector promotes inefficient use of the non-renewable coal resources of India. These are problems that are well known to the Government of India which has launched a number of schemes such as a market based trading scheme that would facilitate trading of energy efficiency certificates, introduction of supercritical technology, modernization of old thermal power stations, retirement of older small size units and comprehensive energy audits and norms-setting for energy usage. The success of these measures is critical, for without that, the Indian coal sector will become unsustainable much before its time.
The author Lydia Powell is Senior Fellow with the Observer Research Foundation and works on policy issues in Energy and Climate Change. She has a Masters Degree in Physics from India and also in Business Management and Energy Management from the Norwegian School of Management.