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Federal Home Minister Amit Shah’s suggestion that India should invest 4 trillion rupees (US$55billion) in expanding new and existing coal mines, as well as high-risk, speculative, domestic ‘clean coal’ projects over the next decade to create a hoped for ‘second life’ is, in our view, entirely inconsistent with the country’s policy direction and ignores the lack of proof of economic viability. However, Minister Shah’s additional emphasis on the need for India to aggressively stimulate investments in new, low cost, domestic energy supply to both cater for a return to sustained economic growth and sustainably reduce its excessive reliance on highly polluting and expensive fossil fuel imports is entirely correct.

The Minister is well aware there is no such thing as ‘clean coal’

Firstly, the Minister is well aware there is no such thing as ‘clean coal’, a concept that describes a hope that new emissions abatement or carbon capture and storage (CCS) technology might one day solve this critical problem central to ongoing coal use. That has yet to occur viably, anywhere around the world.

Secondly, there is almost no economic or scientific evidence globally to support the proposition that thermal coal has any material ‘second life’ use (be that underground coal gasification (UCG), coal-to-liquids, coal-to-chemicals, etc).

Coal currently plays a critically important role in balancing the electricity grid while India drives an ever-larger infrastructure investment into ever-cheaper domestic, sustainable, zero emissions renewable energy. The objective to phase down reliance on imported thermal coal is entirely consistent with increasing India’s energy security, but the country has to be careful about extrapolating coal demand growth trends of the past, particularly as Indian solar is now lower cost that even the marginal fuel cost of running an existing minemouth coal-fired power plant. Indian thermal coal demand is set to plateau by the second half of this decade. As such, coal import substitution is only a limited medium-term opportunity at best.

Any ‘second life’ investment proposition becomes even more outdated and unbankable in light of the global ratcheting up of national ambition to deliver on the Paris Agreement, led by China’s net zero emissions pledge in 2020, and reinforced by similar pledges of accelerated, concerted efforts by 2050 from Japan and South Korea. The election of President Joe Biden means the U.S. will likewise play a significantly more constructive global effort in 2021 in the run up to the 26th UN Climate Change Conference in November. Meanwhile, the European Union’s emissions trading system (EU ETS) pricing is now consistently around €30/t for carbon dioxide, reflecting the region’s ongoing strength in global climate leadership.

Further, a groundswell of the biggest global financial institutions (156 and counting), global central banks (NGFS), global investors (Climate Action 100+) and leading global corporates (RE100+) are announcing net zero emission commitments, and pivoting investments, financing and insurance to make a post COVID-19 green stimulus-led recovery the new reality.

New coal investment proposals risk being commercially unviable

It is paramount for India to protect and enhance its energy security interests, however the country should not be blind to the accelerating momentum of the current technology driven, global energy transition. New coal investment proposals risk being commercially unviable; stranded assets that will almost inevitably need to be subsequently written off, thereby repeating lessons learnt over the last decade in India’s coal power, discom and banking sectors, and of ‘second life’ ‘white elephant’ projects globally.

Any highly capital intensive greenfield investment in CCS, UCG, coal-to-gas, coal-to-oil, coal-to-methanol, coal-to-fertilizers projects, or any similar ‘second life’ pipedreams, is most likely to be a clear repeat of similar historical investment mistakes by China’s coal giants (including China Coal, China Shenhua and Shanxi Lanhua), or in the worst case, may replicate the environmental and economic disaster the now bankrupt Linc Energy coal gasification project proved to be for Australian taxpayers. Let’s see what the Projects and Development India Ltd pre-feasibility study concludes. Hopefully they will independently assess financial, water and environmental risks and not blindly accept the coal promotors’ false promises.

The wealth hazard of ‘second life’ coal was well illustrated by the 60% collapse over the last two years in the share price of Sasol of South Africa, the ‘world-leader’ in coal-to-liquids, now an obsolete technology proven to be a high cost fuel source.

‘Second life’ coal options are high emission proposals, and as China found, usually have an associated exceptionally high water use intensity, a serious constraint to continued economic growth in rural India. These proposals lack almost any scientific or economic proof of success, yet carry dramatic, irreversible environmental risks.

Rather than repeat the lessons of history, it is worth referencing that in 2016, the Minister for Business and Energy Paul Wheelhouse MSP reported to the Scottish Parliament the findings of an independent expert examination of UCG. The need for this review was clear given the “the shortage of reliable information” and global lack of scientific evidence on UCG. The report concluded:

“Firstly, there are very few comprehensive or peer-reviewed studies examining environmental and health impacts. Where impacts have been documented, these have been from trials rather than from full commercial scale activity. Where the industry has operated, which is typically at a pilot or trial scale, there is emerging evidence of significant environmental impacts. This includes soil contamination and exposures of workers to toxins resulting from major operational failures. A number of failures in Australia have resulted in prosecutions being brought.”

In October 2017, the unconventional drilling ban was confirmed by the Scottish Government, noting there was no social licence to operate, given “99% of the responses were opposed to fracking and fewer than 1% were in favour.” IEEFA will have more to say on this and the false promises of other global ‘second life’ coal proposals in our new report set for publication in February 2021.

It is abundantly clear that “solar is the new king”

Coal Minister Pralhad Joshi is correct to state that India’s energy needs are set to grow significantly as sustained economic growth resumes, accentuated by Prime Minister Narendra Modi’s national electrification strategy, a critically important priority that is progressing strongly. And Minister Joshi is absolutely right to remind us that coal-fired power is the dominant source of electricity generation in India (64% of the first half of the 2020/21 total), noting also the clear downward trend in share – being down from 76% just four years earlier.

Priced at Rs2/kilowatt hour, sustainable, zero emission domestic solar is below the marginal fuel costs alone of coal-fired power generation. As the International Energy Agency’s CEO Fatih Birol said in the 2020 World Energy Outlook, it is abundantly clear that “solar is the new king”.

Thermal coal still plays a dominant generation role, while also providing a key balancing need in firming India’s electricity grid, ensuring reliability and grid stability. But the future is clear. India is a world-leader in utilising an ever-increasing share of low cost, domestic, intermittent renewable energy generation. Batteries will increasingly challenge coal power in the critically needed grid balancing role in years to come, as is already evident in the U.S. and Australia today.

Batteries will increasingly challenge coal power in the grid balancing role

Total coal use in India is set to peak and then plateau over the coming decade, at levels probably no more than 10-20% higher than current demand. While there is scope for domestic coal to progressively replace some 100 million tonnes per annum of imported thermal coal this decade, most import-coal-dependent coastal coal plants like Tata Mundra and Adani Mundra in Gujarat, and Adani’s expensive Udupi plant in Karnataka, are over 1,500 kilometres from domestic mines, making large scale domestic substitution logistically prohibitive and an entirely uneconomic proposition. It is more likely that these now stranded non-performing plants will close on expiry of their uncommercial power purchase agreements.

India needs to accelerate investments in future renewable energy technologies, not reinvent history by investing in now obsolete ‘second life’ coal technologies of the past.


This commentary first appeared in The Wire.



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Tim Buckley

Tim Buckley, Director, Climate Energy Finance (CEF) has 30 years of financial market experience covering the Australian, Asian and global equity markets from both a buy and sell side perspective.

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