Coal India Study: ‘No need for new coal mines beyond current pipeline’

A latest Coal India Limited (CIL) study has stated that there is no need to auction or allocate new coal mines beyond the ones that are in current pipeline because of low demand.

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At a time when the Ministry of Coal is discussing with other ministries the modalities of auctioning coal mines for commercial operation, a latest Coal India Limited (CIL) study has stated that there is no need to auction or allocate new coal mines beyond the ones that are in current pipeline because of low demand.

“No new coal mines need to be allocated/auctioned beyond the current pipeline. The total capacity of mines allocated or auctioned (including to CIL, Singareni Collieries Company Limited and NLC India Limited) as on date is about 1,500 MTPA (million tonnes per annum) at the current rated capacity. In view of the likely demand (base case scenario), there is limited requirement of starting new coal mines except the ones already auctioned/ allocated,” the CIL study stated.

However, it added that if actual demand is higher, the coal sector can put its focus on expansion of mines that are already operating or “re-rating of mines” as per their R/P (reserves to production) ratio. In April last year, state-run CIL was forced to cut its production target for 2017-18 from 660 MT to 600 MT due to lackluster demand. From April 2017 to January 2018, the CIL has been able to produce and supply total 474.9 MT of coal to its clients.

The study stated that in short term, coal production is likely to be significantly lower than the potential, although demand “may be met”. It added that the majority of the mines currently, which have been auctioned or allocated, are scheduled to be handed over by 2019-20. “However, delayed clearances, land acquisition problems, R&R (resettlement and rehabilitation) issues, evacuation constraints, etc., can delay materialisation of these plans. Based on the latest status updates, it is estimated that 33 per cent of the capacity is at risk of delay. Hence, the estimated coal production in short term, FY20–22, is 1,050MTPA which is comparable to the demand,” the study stated.

Expressing optimism about a 13-year scenario, the study stated that “even in the most adverse scenario, as of second quarter of 2017, it appears that the demand for coal in India, as a source of primary energy, shall expand until 2030 and perhaps beyond”. However, this would be at a lower CAGR (compound annual growth rate) of 3 per cent, compared to “6 per cent in the last five years (in the low sentiment scenario)”, the study noted.

According to a senior government official, the central government is currently working out the modalities with other ministries on the topic of auctioning coal mines to private sector entities for commercial mining. However, the study stated: “Although initial steps have been taken towards the creation of a competitive coal market in India, any material outcome is unlikely in the near future as CIL is likely to remain the dominant commercial coal supplier in India.” It added that while captive mining may emerge as a significant supply source, it will not impact the commercial supply and related market structure.

The study has noted that the renewable energy sources such as solar energy and wind energy are likely to emerge as key substitutes to coal in future. The total capacity addition in solar over the last two years has been more than 8 GW, an increase of approximately 200 per cent in the installed capacity. Wind has also seen similar capacity addition (about 7GW), albeit on a higher base. “Battery storage cost has reduced substantially from over $1,000 per kWh to about $250 per kWh over the last few years. With increasing supply and advances in technology, battery cost is expected to go down further to approximately $50 per kWh by 2030. This may have significant implications on coal-fired power plants in terms of replacing the thermal capacity required to meet the peak demand,” the CIL study stated.

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