Coal exports: Low quality, rising power consumption may be major hurdles

The Union coal minister recently said India will have so much coal that the country will export it soon. Backing his statement, the secretary, ministry of coal, said domestic coal production will touch 1.5 billion tonnes (BT) and since it will be in surplus it can be exported.

As appealing as the idea sounds, especially at a time when the Centre has opened all the gates for private investment in coal mining, there are caveats before India becomes a coal exporter. The primary and major one is the country’s current “net coal importer” status.

Data compiled by Business Standard shows that over the past decade, India has barely exported any coal (see chart 1). On the other hand, coal imports have been steadily rising after a brief slowdown during Covid. The uptick in imported coal demand has come on the back of rising thermal power demand and imports by non-power sectors that are facing a shortage of domestic supply.

During the Covid years, as electricity demand fell with the nationwide lockdown, surplus coal capacity with national miner Coal India Ltd (CIL) was exported to neighbouring countries. In 2020-2021, India exported close to 800,000 tonnes (0.8 million tonnes) steam coal to Nepal and Bangladesh.

Overall steam coal exports fell by half in 2022-23 over the preceding year as the economy recovered from the pandemic and coal demand went up; it is likely to fall further with record high electricity demand expected this year.

But despite this pressure on demand that recently prompted the power ministry to exhort imported coal-based plants to run at full capacity earlier this year, India has ambitious plans of increasing its coal production. CIL, which accounts for the bulk of domestic demand, touched 880 MT of production last fiscal year and is aiming to cross 900 MT this fiscal. Overall, the country is aiming to produce one BT of coal by the next fiscal year and 1.5 BT in the coming years, coal secretary Amrit Lal Meena said last month.

India has also awarded coal mines to private companies for captive and commercial purposes. Production from captive coal mines touched 100 MT last fiscal and is expected to double in the current fiscal. Commercial coal mines awarded over the last two years are also expected to start production, said coal ministry officials. During 2022, three commercial mines had started production. The coal ministry has already auctioned close to 95 coal mines and another 106 are on offer through a rolling auction.

Coal ministry officials said they are hopeful of breaching the one BT production target soon with commercial and captive mines coming online.

According to projections by the International Energy Agency (IEA), growth in India’s coal consumption will be the world’s fastest, even higher than China. By 2025, our coal demand will rise to 1.2 BT whereas production is expected to be around 1 BT, said IEA in a recent report on coal demand (see chart 2). It also said India would drive global coal demand given its rising energy needs.

CIL’s management in 2022 has expressed the intention of exporting coal but said it is not possible due to the energy crisis at domestic level where the demand of coal has increased significantly.

India crossed 200 Gw of power demand in 2023. This summer it is expected to touch 230 Gw. Given that close to 70 per cent of India’s power demand is met through thermal power, coal consumption is also expected to go up. With the addition of renewables, the share of coal in the energy mix is expected to go down to 50 per cent, but it will continue to be the major source of electricity generation.

The Central Electricity Authority, the technical arm of the power ministry, has projected India’s installed capacity to grow to 800 Gw from the current 360 Gw. Of this, by 2030, CEA expects coal to be 33 per cent of the total installed capacity, the same as solar which it says will command 34 per cent in the capacity pie. The coal requirement for 2029-30 has been worked out to be about 892 MT, CEA said in its report on India’s future energy basket.

Sector experts, however, point out that unless large-scale energy storage systems are in place, solar capacity will not be enough for the country’s energy transition. Renewable energy sources currently contribute barely 10 per cent to the national electricity supply. Given their low plant load factor (PLF) or operating ratio, the energy supply from renewables would be lower than other sources.

India has set 2070 as the target year for achieving net carbon zero, though has not given any expiry date for coal. There is global pressure on India to dial down on coal. Officials in the ministry of coal, however, have indicated that the Centre will not agree to any climate financing deal that asks for retirement of coal.

Back to the issue of exports, India would need to mine surplus coal beyond its domestic needs. However, the quality of Indian coal is among the lowest in the world. There is at least a difference of 3,000 kcal in the coal mined in India versus African, Australian and Indonesia that are major exporters.

That is why, apart from minimal demand from Nepal and Bangladesh, there has never been any major demand for Indian coal in the global market. A coal sector executive confirmed that quality would be a major deterrent to the export plans. “Also, countries such as Bangladesh would like to import electricity from India, rather than buy coal. We already have an electricity banking facility via a hydroelectric reach to neighbours. There are hardly any takers for Indian coal, unless for industries in less developed nations which want cheaper coal,” the executive said.

Over and above these, a major emerging hurdle to coal exports would be the energy transition goals of countries that are looking to reduce their exposure to fossil fuels. The questions of India’s future coal production and consumption, the trajectory of renewables supply, and whether the country can find a place in the global market are all still up in the air.