India's weak hydroelectricity production in recent times might stimulate further usage of coal to fulfil its rising power demand in the coming months, which is also likely to keep the import window open for the country, according to S&P Global Commodity Insights.
India has recently delivered a stellar performance in its coal production by nearly touching the 1 billion mt mark during the fiscal year 2023-24 (April-March), which was in line with the government's target of reducing the country's dependence on coal imports. However, depleting hydroelectricity output amid irregular rainfall in the past fiscal has led to a lower water level available in the country's primary reservoirs which could further reduce India's hydropower generation during the summer.
“Hydropower accounts for roughly 11-12.5 per cent of India's total installed power generation capacity. This translates to around 46,865 MW (megawatt). Hydropower's share in India's power output fell to a record low of 8.3 per cent in the fiscal year ending March 31, down from a 12.3 per cent average over the previous decade, due to erratic rainfall and rising demand, increasing reliance on coal. India had 4,745.6 MW of pumped storage capacity operational in 2023, with 57,345 MW under development," said Manish Dabkara, Chairman and MD of EKI Energy Services.
Renewables' share also declined slightly to 11.7 per cent. The sharpest drop in hydroelectricity output in 38 years reflects the challenges of relying on hydro as a consistent power source amid changing climate conditions, highlighting the need for a diversified energy strategy, added Dabkara.
India has imported around 85 million mt of thermal coal so far in 2024.
“The first half of 2024 could potentially show stronger coal imports than the second half amid a likely lower hydropower generation because of the impact of El Nino,” said Pat See Khoo, Senior Analyst (Global Power and Renewables), S&P Commodity Insights.
Even though the Indian government has pledged to become carbon neutral by 2070 and ramped up adding renewable energy-based infrastructure in the country, its contribution to the country's total power generation is yet to become significant. In the past few years, India has focused on powering its economy by raising capital expenditure on sectors like infrastructure, which forms a major proportion of India’s steel demand.
With that, the need for raw materials such as coking coal has also risen sharply. India is now the largest seaborne coking coal buyer, a trend driven by the country’s growing steel capacity and consumption. India aims to raise its steel capacity to 300 million mt per year by 2030, up 71 per cent from 2023.
“Coal is one of the dirtiest fossil fuels, releasing large amounts of carbon dioxide (CO2) when burned. India, as a major coal consumer, is a large emitter of CO2, making it difficult to achieve ambitious climate goals. India has pledged to reduce its carbon emissions intensity (emissions per unit of GDP) by 33-35 per cent by 2030 compared to 2005 levels. This target has been revised up to a 45 per cent reduction. However, continued reliance on coal makes achieving these targets challenging,” said Manish.
He added that fluctuations in hydropower output, especially in dry seasons, can create challenges for grid stability. Power grids need to adjust the output from other sources like thermal and renewable plants to maintain a constant electricity supply. This rapid ramping up and down of generation capacity puts stress on the grid.
This is expected to further fuel India’s coking coal requirements. India also aims to boost domestic coking production and reduce imports. Despite this plan, India’s coking coal imports are set to reach 100 million mt in 2030, S&P Global Commodity Insights estimates.
