Defining moment for India's coal

India must find its own sources of funding

The year 2020 opened with two sets of announcements on coal, the world’s most widely used energy fuel that has a 38 per cent share in global electricity generation. On January 8, the union Cabinet cleared an Ordinance to introduce commercial coal mining in the country. A few days later, the new law that delinks coal mining rights from captive usage and puts traders and users on a par when it comes to allocation of coal mines, was notified. But within a week, at the other end of the world, in New York, BlackRock, the world’s largest asset manager, turned its back on investment in coal.

The two totally unrelated events that, ironically, have black rock or coal as a common thread will define the way India’s coal sector moves. The question is, how does one investor’s decision to not support coal projects impact a large market like India, especially since the two biggest companies in businesses related to coal, Coal India and NTPC Ltd, are government-promoted and have good internal resource-generation capabilities.

It is important to note here that commercial coal mining dreams of any player, whether Indian or foreign, will be dependent on their ability to raise funds and any debt or equity provider pulling out of the coal business could impact this exercise. Besides, a global fund squeeze at a time when domestic banking institutions have either reached their sectoral lending limits or find their power portfolios stressed out, would mean that even customers in the coal value chain will find the going tough.

BlackRock is not the only financier pushing for a no-coal future. Some years back, International Finance Corporation had announced it won’t make any investment in coal though it did not pull out of existing investment.

BlackRock is not the only financier pushing for a no-coal future. Some years back, International Finance Corporation had announced it won’t make any investment in coal though it did not pull out of existing investment. There is an overwhelming built-up of sentiment across the globe against financing of coal projects and when a brand like BlackRock moves away, others are bound to follow soon. Already, global managers with over $11 trillion of assets under management have decided to exit fossil fuel investments. These comprise 116 banks and insurers across the globe, according to data compiled by the Institute for Energy Economics and Financial Analysis (IEEFA), an anti-coal environment lobby group.

Despite this, the Indian coal market, especially in the power sector, is not changing drastically in the near term. Unlike Britain, Germany and France, which have laid out a clear road map for phasing out of coal-based power generation, India has no such plans. Part of the reason is that 70 per cent of its power is still generated from coal.

According to BP’s Energy Outlook, almost all of the growth in power demand comes from developing economies, led by China and India. And, therefore, it is important to note that India’s energy ecosystem that feeds on cheap power supply and low dependence on fuel import for electricity can hardly change in the near term.

Besides, the government has on its shoulder the responsibility of feeding power into the homes of 26.5 million new customers. The fact that these customers are at the lowest end of affordability and their aspiration of better and more hours of power supply cannot be left to renewables alone but will need continued support from coal is one reason that makes transition to green energy difficult.

All that India committed in Paris as part of its climate change goals is to push for renewable-based power generation but without any timeline for moving completely out of coal. It was only incidental that power generation from coal based thermal power plants in India fell by 3 per cent to 718.5 billion kwh in April-December 2019 over the previous year. Short supply of coal, especially in privately run generation units, was the reason for this fall and not that distribution companies switched off coal power to make way for renewable electricity. Good rains helped in higher hydropower generation with hydro and nuclear sources recording 18 per cent increase in generation during January-December 2019.

Nonetheless, there is a comforting factor for India in its green power story. The share of renewables in global power generation last year, if hydropower is excluded, increased from 8.4 per cent to 9.3 per cent which means that a 10 per cent contribution by renewable power in India is on a par with the global average and now, whatever, the country does in terms of adding gigawatts in green power, would only be better than the globalaverage.

In such a scenario, pushing for commercial mining of coal may look odd and not in sync with India’s nationally determined contributions (NDC), but, nonetheless, it will be a good move towards greater transparency in the use of the resource. In that sense it is a move towards a mature coal market. But with global sources of funding closing, all this would be achievable only if India succeeds in finding its own sources of funding coal.