India needs to get moving toward eliminating coal

In 2019, coal provided 162 EJ of energy and accounted for 27% of the world’s primary energy supply. In 2022, 10,200 TWh of electricity was produced using coal, and its share of global electricity production was 35% after recovering from the Covid-related economic downturn. Global GHG emissions from coal increased to approximately 15.5 Gt CO2-eq as a result of gas-to-coal switching in Asia, while energy-related GHG emissions reached an all-time high of 41.3 Gt CO2-eq.

Half to three-quarters of the electricity used in several developing nations, including South Africa, India, China, Indonesia, and Vietnam, is generated by coal. These nations have demonstrated climate ambition by committing to net zero GHG emissions by 2050 or later, despite the country’s high reliance on coal for power generation.

However, it is estimated by studies that emissions from the production of electricity must be reduced to net zero globally by 2040 and by 2035 in advanced economies in order to comply with the IEA’s net zero by 2050 scenario.

Evolution of the just energy transition partnership

The Just Energy Transition Partnership (JETP) is a financial agreement between governments of developed nations and certain emerging economies. It is the evolution of the partnership. The goal of the JETP is to address the difficulties that come with moving to low-carbon energy systems in countries of the Global South while also making sure that communities that are affected have a fair and just transition.

By moving away from fossil fuels, particularly coal, and supporting renewable energy (RE), energy efficiency, and clean energy innovation, it aims to create a cleaner energy future.

On the sidelines of the G20 Summit in Bali, on November 15, 2022, the Government of Indonesia and leaders of the International Partners Group (IPG) made the announcement for the second JETP. Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom are all members of the IPG, which was co-led by the United States and Japan and signed a $20 billion agreement to switch from coal-based power to clean energy sources.

Over the course of three to five years, public resources will be used to mobilize the fund, and the Glasgow Financial Alliance for Net Zero (GFANZ) will facilitate private financing through a variety of financial instruments like market rate loans, concessional loans, guarantees, and grants.

On December 14, 2022, the third JETP was signed with the Vietnamese government. It aims to raise an initial US$15.5 billion over the course of three to five years. Through a combination of public and private finance managed by the GFANZ, IPG members made a total commitment of $7.75 billion US dollars.

India and Senegal are currently participating in discussions regarding the implementation of JETPs, as stated in the G7 Leaders’ Communiqué (2022). However, the Indian government wants to develop its own “transition plan” rather than negotiate a “coal phase-out.” In addition, it was reported that India would not be able to afford the international funding if it committed to a timetable for eliminating coal.

(Picture Credit: Asia Financial)

Declining planned capacity additions

Declining planned capacity additions In 2022, India’s coal-fired power plants had an installed capacity of 234 GW, or more than 50% of the country’s installed power generation capacity, but a share of more than 70% in electricity production. Even though it was predicted that India’s power demand would double by 2030, there were only 2.7 gigawatts (GW) of new coal plants built, which is the lowest level in the last 15 years. In 2022, 21 GW of projects were put on hold, and several coal projects have been canceled over the past decade as the planned capacity is gradually being reduced.

However, 32 gigawatts of coal plants are in the process of being built, and 28 gigawatts are in the early stages of construction, such as permitted, pre-permitted, and announced. This decline in capacity additions suggests that the Indian power mix is unlikely to include any new coal-fired plants. Globally, an increase in the number of plants that have been put on hold or cancelled reflects similar trends.

Lower cost of renewableenergy with storage

Lower cost of renewable energy with storage Lazard’s levelized cost of energy (LCOE) report, which was released in April 2023, found that the LCOE for utility-scale solar and storage is between 46 and 102 US dollars per megawatt (MW), which is already lower than the LCOE for newly constructed coal plants, which is between 68 and 166 US dollars per megawatt (MW).

Since the cost of renewable energy with storage is already lower in many parts of the world, it makes financial sense to stop investing in coal-fired power plants if the cost of grid-scale storage continues to fall.

Risk of stranded assets

Risk of stranded assets A $220 billion investment in coal plants could be lost worldwide (110 billion in Asia) as a result of the Paris Agreement’s commitment to limit global temperature rise to well below 2 degrees Celsius. Due to the possibility of the nation’s net zero commitments forcing early closures, the analysis comes to the conclusion that new coal plants are unlikely to yield a financial return over their lifetimes.

NTPC topped the list of the top six Indian companies that were exposed to the risk of stranded assets. Existing coal-fired power plants’ lifespans are reduced to approximately 35 years in a scenario with temperatures well below 2 °C and to 20 years in a 1.5 °C scenario, confirming the high risk of stranded assets.

Explicit accounting of carbon costs

Explicit accounting of carbon costs Global trends indicate that carbon pricing is being gradually implemented in a number of nations, including India, which is likely to establish a domestic carbon market in 2023. Internal carbon pricing is already being used by many businesses to deal with the transition risk posed by new laws and is being taken into account when making decisions.

Despite the absence of a demonstrated low-cost, large-scale deployment of carbon capture and storage (CCS), the cost of carbon abatement technologies remains very high. In the European market, the price of carbon has risen rapidly, surpassing the Euro 100 mark per tonne of CO2 emissions. This suggests that if the cost of carbon is explicitly included, the price of electricity produced by coal will likely rise.

(Picture Credit: Down To Earth)

High cost of capital

High capital costs: Major international banks, the G7 and G20 groups, and nearly all development financers have decided to stop funding new coal-fired power plants through international public financing. Absence of minimal expense obligation will essentially build the supporting expense of new coal terminated power plants.

Alternately, the investment capital will need to be provided by nationalized banks or by public companies that self-fund themselves with government guarantees. Due to the higher cost of capital, these financing mechanisms won’t work well, loan repayment will come with risks, and public finances might be put under pressure.

Rethinking new coal plants

Rethinking the construction of new coal plants The aforementioned arguments must be carefully considered by Indian energy planners. However, the Central Electricity Authority of India (CEA) recently announced the National Electricity Plan, which calls for the addition of over 50 GW of new coal plants over the following ten years. Plants in the early stages of planning, such as the permitting, pre-permitting, and announcement stages, must be carefully reevaluated, even though some of the planned capacity is already being built.

Countries must focus on improving the load factor of existing coal plants, increasing demand-side energy efficiency, and reducing losses in electricity transmission and distribution rather than building new coal-fired power plants. The need for additional coal plant capacity will be eliminated by systemic improvements, including the construction of utility-scale storage, peak load shaving, and enabling policies to permit the integration of renewable energy behind the meter.

(Picture Credit: The Economic Times)

Conclusion

Conclusion Despite the fact that coal will continue to dominate the power mix of developing nations over the coming decades, no additional coal power plants should be built. As of right now, India and other emerging economies do not favor the coal phase out or early retirement of coal plants. However, the energy transition path must adhere to the Paris Climate Agreement and select a “no regret” option.

The decision to join the JETP is a political one, and every nation has the right to make the one that best suits their particular capabilities and needs for development. However, a global decision to stop building new coal-fired power plants is progressive, avoids lock-in, and demonstrates a nation’s commitment to decarbonization. This significant decision may one day serve as a benchmark for India’s climate leadership in the coming decades.

Leave a Comment