A misguided attempt to revive Coal

Image Courtesy:superiorglove.com

In the year 2020, the central government decided one of the myriad ways in which Bharat could become Atmanirbhar or how India could become self-reliant, was by further liberalisation[1] of the coal sector. By the end of the year, it had additionally deregulated environmental standards pertaining to fly-ash content and coal-washing. Those who consider economy to be a zero-sum game that excludes environmental considerations, hailed such steps and contended that revenue would flow in.

However, a closer inspection presents a slightly different tale. For example, ever since the auction for coal blocks began, actual revenue has fallen far short of estimates. In fact, in 2018, a report[2] found that only 3% of the projected revenue was met. The projected claim was INR 3.35 trillion, but collections amounted to INR 56.84 billion only. In the end of April 2021[3], the government itself decided to come up with project, financing policies to encourage private investment in coal mining, seeing the general hesitancy.

Another point that often finds mention is that coal is good for job creation in local communities. While this may be true to some extent, any gains in the present scenario are going to be temporary. The coal sector is fully staffed[4]; in fact, Coal India began looking at human resources restructuring for its more than 3.4 lakh employees in 2014. As a simple statement of fact, as further plants get decommissioned, it will exacerbate the already existing over-staffing problem. All this points to an unavoidable truth: trying to liberalise coal is not just bad for the environment; it is bad economic policy too.

However, reaching a conclusion is one matter. Providing alternatives is quite another. There are communities that depend on coal, and reducing dependence on coal, without investing in other forms of energy can be catastrophic. Therefore, planning is essential on two fronts: energy supply, and energy transition.

Even today, energy supply in India is plagued by distribution issues more than generation issues[5]. This is because its last-mile infrastructure is poor. A staggering 305 million people[6] still do not have access to electricity. Therefore, the primary sector where the government should look at investment is in distribution networks. Because the last-mile is generally in neglected places where private players might not find much value, such as at sub-village levels, the investment must directly come from government coffers.

Another reason for poor distribution, despite surplus production, is the debt distribution companies have taken on by supplying free electricity due to various government schemes. Governments must take immediate steps to eradicate such misuse by stopping all policies where free electricity is provided to people who are rich enough to use beyond a certain threshold.

Furthermore, for all populist schemes such as free electricity for irrigation, it must be counteracted by profit-centres. This means allowing distribution companies to diversify. It can mean allowing them to foray into broadband across the country, which is still clustered around urban areas[7]. Of the 922 million rural people in 2014-15, only 129 million had access to the internet, of which 80 million was mobile internet. Distribution companies should also be allowed to enter the off-grid electricity markets, which can be more profitable in isolated areas. It can also mean allowing them to build distribution networks in other countries, especially those that have contiguous borders with India. This will expand India’s global influence across its borders; especially in its neighbourhood, where it needs to counter a growing dependence of other countries on China.

At the same time, generation must shift from coal towards other renewables, especially where the marginal cost of production is less than coal, such as in solar energy and lithium-ion batteries. To give an estimate of the projected median Levelized Costs of Electricity (LCOE) in 2030[8], we see that while coal would be around 50 Eur/MWh in India, Photovoltaic Rooftop, Photovoltaic Utility and Lithium-ion batteries will be around 35 Eur/MWh, 25 Eur/MWh, and 30 Eur/MWh respectively. China and USA have already achieved this price inversion in the last decade and India must speed itself up.

Hence, it is not a surprise that while coal is unable to find foreign investors[9], solar energy faces no such problem, indicating investor confidence. That Dutch investors are investing in Indian solar power, a week apart from the government trying to find project finance for coal, points to the state of both energy sources in May 2021. However, transition to solar energy means building a proper global supply chain and taking a lead in the manufacturing process.

The other energy source with lower projected LCOE in the future is Lithium-ion battery. These batteries require rare metals[10] such as Lithium and Cobalt. Previously linked reports already point to nationalised banks withdrawing from overseas coal projects due to environmental impacts. They should concentrate that energy instead in investing in rare metal procurement by tying up with local investors. That would build a global footprint for India, especially in Africa and Latin America, in this sector as well. To counteract existing Chinese influence in this region, Indian banks can also take the lead in drafting trade finance requirements which can counteract unethical purchase[11].

Taking these steps will ensure that India leads in this century instead of playing last century’s game. It will create new jobs, make itself a market leader and improve infrastructure, all in a single attempt. Authorities must not squander this opportunity to become a self-reliant and environmentally responsible nation.

The author is a professional in Energy, Trade and Finance, City University London