This is the final piece in a three-part series. Read part one here and part two here.

Despite market turbulence brought by the coronavirus pandemic, 2020 proved to be a formative year for India’s clean energy transition.

Solar prices hit record lows, definitively ousting coal as the cheapest source of electricity. The government held creative auctions designed to facilitate adding greater amounts of intermittent renewables on the grid. And Prime Minister Narendra Modi reaffirmed India’s commitment to reaching its bold renewable energy targets, claiming the country will ultimately exceed its Paris climate goals.

But the growing adoption of solar, wind and other clean energy technologies doesn’t tell the full story of India’s energy shift. It is impossible to ignore the role of coal.

State-owned enterprise Coal India is the largest coal mining company in the world. The coal sector is a major source of revenue for states and the central government. Also, while renewable energy capacity is dramatically increasing, coal still provides around 70 percent of the country’s electricity.

Last year, the Modi government sought to boost the domestic coal mining sector with a series of commercial auctions. The government has also repeatedly delayed the implementation of pollution regulations for coal plants, effectively throwing the dirtiest coal plants a lifeline.

As the third-largest producer of carbon dioxide emissions in the world today with an economy that's poised to see massive growth in the future, what happens to India’s energy mix will have a significant impact on the entire planet and its inhabitants.

“I can't overstate how important this decade is to India's energy transition,” said Varun Sivaram, senior research scholar at the Columbia University Center on Global Energy Policy, who recently gave a TED Talk on the subject. “Without decisive action this decade, India's aggregate emissions could soar to become the world's largest by midcentury — a body blow to global efforts to rein in climate change.”

Achieving India’s target to deploy 450 gigawatts of renewable energy by 2030 is critical if the country is going to succeed in displacing coal generation on the power grid as overall energy consumption grows. According to Sivaram, getting to that goal will require implementing the right blend of policies, financial tools and technologies to cut deadly air pollution, make India a global hub for cleantech innovation and create the world's largest market for clean energy deployment.

“It's critical that India build no new coal plants and also begin retiring existing ones, particularly older, highly polluting plants,” Sivaram told Greentech Media. “All of this will require substantial investment in a modern, flexible electricity system.”

Stranded coal assets

In some ways, ditching coal is an easy case to make. The sector has been under financial distress for years due to bad loans and other business decisions that have saddled coal plants and distribution utilities with billions of dollars of debt. The Parliamentary Standing Committee on Energy previously identified 34 thermal coal power plants as stranded assets suffering from premature write-downs and devaluation. A December 2019 report published by the Institute for Energy Economics and Financial Analysis (IEEFA) found that an additional 12 plants could have moved out of the range of economic feasibility.

The cost-competitiveness of renewable energy alternatives, air pollution regulations and water scarcity have also been putting pressure on the coal sector — and that was before the COVID-19 pandemic cratered energy demand. At the height of India’s economic lockdown, the average Indian coal-fired power plant operated at just 40 percent capacity utilization as cheap renewables were favored on the grid. Today, coal facilities in India are operating at around half of their intended plant load factor, unable to sell much of the electricity they produce.

Source: IEEFA's "Seriously Stressed and Stranded" report

Experts say that these factors have already killed prospects for new coal-fired power plants in India. In 2019, the states of Gujarat and Chhattisgarh, the latter of which is home to India’s third-largest coal reserves, announced that they will not build any new coal generating facilities. Last fall, Indian power minister R.K. Singh said that the generating capacity from 29 coal plants scheduled to retire in the coming years would be replaced entirely by renewables.

Still, coal isn’t going away. Even as the Indian government strives to meet bold renewable energy targets, coal use is expected to increase as India’s overall energy demand grows. With a robust domestic supply chain and ample capacity available to ramp up coal use at existing power plants, India could burn through a lot more of the polluting resource without having to build any new generating stations.

“We have an abundance of coal, so the reality is that we will have more coal as we go forward,” said Sumant Sinha, chairman and managing director of ReNew Power, India's largest clean energy company, and author of the book Fossil Free.

As a percentage of India's total power production, coal is expected to decline from 70 percent to 50 percent over the next decade, according to India’s Central Electricity Authority. But in absolute terms, coal use will increase as India’s overall energy demand grows.

“Now, the question is what happens after that? What happens after 2030 and 2035?” said Sinha. “Because in reality, nobody's going to want to invest in new coal capacities.”

All eyes on solar and storage

What India’s energy mix will look like in the medium term relies in large part on how the next phase of India’s clean energy transition unfolds. Solar and wind have proven to be reliable and affordable energy resources. But the market for energy storage and other advanced technologies needed to balance the use of intermittent renewables on the grid is still emerging.

Until clean energy is flexible enough to provide power whenever it's needed, experts say there will be a role for coal in India — even if it’s not as dominant in the mix of energy resources as it once was.

“Today, solar electricity is the cheapest electricity that is produced in India, but only when the sun is shining. At night, coal is the cheapest electricity. So we are living in these times where both coal and solar are growing,” said Ajay Mathur, director general of The Energy & Resources Institute (TERI), in an interview in Delhi early last year.

“This will continue until we get batteries that are inexpensive enough that…the cost of solar-plus-storage is less than the cost of coal electricity,” he continued. “Once that happens, nobody, not a developer or a financier, will have any interest in financing a coal plant.”

Before the pandemic hit, TERI projected that the tipping point for low-cost battery storage would come before 2030. In a year-end memo, TERI researchers affirmed their belief that India may not need any new coal-fired power plants beyond what’s in the current pipeline. But the memo also underscored that India does need a comprehensive set of solutions to increase the flexibility of its power system and integrate a larger share of variable renewable energy.

According to a 2019 Brookings Institution report, coal will still produce the majority of electricity used in India at the end of the decade. Coal use in the power sector could plateau, according to the authors. But that will require deploying renewables at an even faster pace than the current trajectory and increasing the utilization or load factor for those renewable energy projects, as well as converting coal-fired power plants to natural gas and growing hydro and nuclear power generation.

Source: The Brookings Institution's "Coal in India" report

Sivaram noted that accelerated investments in energy efficiency, and air conditioning in particular, will be critical. India’s cooling demand could drive demand for an additional 800 gigawatts of power generation by midcentury, which is more than twice the capacity of India’s entire electricity capacity today.

Sinha of ReNew Power believes that coal will eventually reach negligible levels in India, but that the transition will take time and require building new competencies and promoting an equitable transition.

“It's going to be a gradual process,” he said. “But that gives sufficient time for people to get trained away from coal and into newer areas [and] for those companies that are wind down and find new business models and invest their money into new activities. It could be solar manufacturing, for example. I think that's the way the transition is going to work out.”

An all-of-the-above approach

There are signs that India’s transition could move more rapidly than expected. Continued cost declines in solar and wind, coupled with pervasive health and environmental issues, have started to trigger discussions in India around closing existing coal facilities, in addition to avoiding the construction of new ones. Notably, Power Minister R.K. Singh and Finance Minister Nirmala Sitharaman have both stated that India’s oldest and dirtiest coal-fired power plants need to shut down.

Aarti Khosla, founder and director of Climate Trends, a Delhi-based strategic communications initiative, said these are no longer isolated remarks.

“The fact is that there are a lot of open doors now to have these conversations because there is growing evidence of coal power’s role in aggravating air pollution,” she said. “It is about a range of issues from societal impacts, the impact on health, and also economic indicators, which are looking worse due to air pollution impacts. Today, it's far more possible for states to be discussing the phase-down of existing coal and not just stopping the new build.”

However, India’s Ministry of Power appeared to backtrack last month on commitments to shutter existing coal facilities by proposing to allow relinquished plants to continue selling power, which could help old coal plants earn additional revenue. The situation today remains murky as policymakers seek to mitigate poor air quality while keeping coal plants open.

“It's interesting because the government does have a really strong commitment to clean energy, but that is not the same as a really strong commitment to decarbonization,” said Kanika Chawla, senior program lead at the Council on Energy, Environment and Water, a Delhi-based think tank.

“They want clean energy to thrive. They want it to be a new business and industry that develops in India. They want the world to come and participate in the Indian energy transition given how much private money is required. But that doesn’t mean they’re willing to shut down power plants,” she said. “So it's a bit of an all-of-the-above kind of approach.”

That approach is reflected in the government’s treatment of air pollution regulations, which would require coal plants to adopt new pollution control technologies. The rules have already been delayed several times. And yet 70 percent of India's coal plants may still fail to comply with the current 2022 deadline, according to the Centre for Science and Environment, a Delhi-based think-tank.

In addition to propping up coal-fired power plants, the central government has taken concerted steps to support coal mining. Because existing coal plants are operating at extremely low plant load factors (PLFs), there is plenty of room for India to use more coal without having to build additional plants.

Source: IEEFA's "Seriously Stressed and Stranded" report

“Currently, there's not enough demand, so a lot of these plants are not operating at their full capacity or at very low PLFs. There are some plants where they are struggling with the availability of coal,” said Vibhuti Garg, energy economist with IEEFA, in an interview last year. “But as economic growth picks up and demand for electricity picks up, while we are adding more and more renewables, there is a highly likely chance that this existing coal capacity will be ramped up and that will contribute to more emissions.”

New auctions for coal mines

In June 2020, Prime Minister Modi launched an auction process to open 41 coal mines to commercial mining for the first time. The move was designed to create competition for government-owned Coal India, reduce India’s reliance on imported energy products, and attract investment to help the country recover from the economic fallout of the COVID-19 pandemic.

"The market for coal is now open. It will help all sectors," Modi said in a video address.

The auction brought new domestic players into the Indian coal sector. However, two-fifths of the mines opened up to private investment received no bids, and zero foreign firms participated.

“They got none of them because foreign capital is not interested in investing in coal, full stop,” said Tim Buckley, director of energy finance studies for Australia and South Asia for IEEFA. “That's how far we've moved.”

But the Indian government hasn’t given up on expanding the domestic coal mining sector, claiming that recently auctioned mines will create tens of thousands of jobs. In December, the government reinvited bids for four coal blocks that initially saw little interest. Indian officials are also looking at ways to expedite the operationalization of coal blocks that have already been allocated or auctioned. In addition, the central government plans to come up with the second round of auction of blocks for commercial mining in January.

India is home to vast coal reserves, but it still imports large quantities. The push to expand domestic mining stems from a desire to mitigate energy security risk. Some government officials also believe that coal will be the largest contributor to India’s ambition of becoming a $5 trillion economy.

Balancing development and "breathable air”

While energy demand took a dive in 2020 amid the pandemic, the International Energy Agency’s December market report forecasts global electricity demand to increase in 2021, driven predominantly by China and India.

Looking at the longer term, India is expected to lead the world in energy demand growth between now and 2030. To meet the needs of a growing population seeking upward mobility, India’s per capita energy consumption will have to quadruple, according to an economic survey presented in Parliament last year.

Meeting all of India’s growing energy needs will take more than reaching the country’s target of 450 gigawatts of renewables by 2030. Even if the energy transition continues to accelerate in the electricity sector, coal use in India’s growing industrial sector must still be addressed. 

“Even if India meets the ambitious 450-gigawatt target, its overall coal use is still slated to rise because of its industrial sector, which the IEA projects will be the economy's largest source of growing emissions and coal use,” said Columbia’s Sivaram. “So it's just as important this decade to demonstrate clean industrial technologies — in steel, fertilizer, cement, petrochemicals and other industrial sectors — that can avoid the need for coal use so that in subsequent decades, India can rapidly wean its industrial sector off coal.”

“India should not have to sacrifice development for breathable air,” he added.

Air pollution killed more Indians in 2019 than any other risk factor — and that was before the pandemic. Doctors are concerned that poor air quality makes COVID-19 even more deadly. Recognition of these threats could fuel the political will to put India’s clean energy transition on an even faster path.

Cities have already seen air pollution levels spike as winter sets in and business activity resumes. The mountains that were briefly visible from Delhi at the height of the coronavirus lockdown are once again shrouded in smog. While it’s a mixed picture, market-watchers are optimistic that coal will meet its demise sooner rather than later.

“It is a period of flux, but it will shake out very soon in favor of a transition toward renewables,” said Khosla of Climate Trends.

“I think among the policymakers in the country, one thing is pretty clear: With the rapid expansion that will happen in the consumption of energy, not all of it can be met by fossil-fuel sources,” she said. “Coal will no longer be the king.”