Photograph by Kevin Frayer, AP
Published July 24, 2012
Along India's narrow coastal belt of Mundra in Gujarat State, 500 miles (805 kilometers) northwest of Mumbai, several coal-fired power plants generate electricity so cheaply that authorities for the most part have overlooked damage to fishing and grazing, and harm to the vulnerable mangrove ecosystem.
It is here that Tata, India's giant conglomerate and largest private electric utility, has been building what it hopes will be one of the largest coal power plants in the world, the 4,000-megawatt Tata Mundra. It is one of nine such "ultra-mega" plants being built across India.
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But the Tata Mundra project has brought to light a new reality that will surely shape India's energy future. Coal power is no longer looking like cheap power.
Although India has seemingly abundant coal reserves, the low-quality, high-ash fuel causes problems when it's used in state-of-the-art power plants. Instead, companies like Tata are looking overseas for coal, and import prices have been rising steadily. Tata's chief executive officer says Tata Mundra won't be financially viable unless it gets a hefty rate increase to offset the soaring prices of imported Indonesian coal.
Coal suitable for fueling these new plants is turning out to be scarce and expensive, leaving many in India to ask if it has any selling point left at all. It also is losing its luster as certain renewables, such as wind and solar, become more cost-competitive.
"[The] cheap coal power age is over," said Soumya Dutta, the national convener of the India People's Science Campaign, an activist group that focuses on energy and climate-change issues.
Coal's Appeal Wanes
Coal provides roughly 70 percent of India's electricity, and the government's most recent plan called for coal to provide for 75 percent of newly installed capacity. Most projections were that the fast-growing nation would rely heavily on the most carbon-intensive fossil fuel in the future, because its reserves were so large.
India, which has a population of 1.2 billion, the second largest in the world, has an electricity-supply shortfall of about 15 percent during peak demand hours. Per capita consumption is low but soaring. The country's 2003 electricity act mandates power for all, but the United Nations estimates 400 million of India's citizens are still without access to an electric grid.
Critics often argue that the bulk of the new power in India goes to the upper middle class and growing wealthy class in the form of big shopping malls and air-conditioned houses and offices. India also has a high rate of electricity loss due to theft and inefficient transmission and distribution.
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Reflecting India's coal frenzy in recent years, additional projects approved or in the pipeline would add capacity several times larger than projected demands through 2032, according to the Prayas Energy Group, an Indian think tank that focuses on the issues of the poor.
"It is not India alone which is having this massive coal /coal power fever," Dutta said. He noted that most developing countries, such as China and South Africa, have "caught this disease" as they face rising demand for energy. Wealthy countries also have faced challenges weaning themselves off of coal, although the United States has significantly cut coal's share of the nation's electricity mix in the past year due to a newfound abundance of cheaper natural gas.
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India's strategy of building ultra-mega plants such as Tata Mundra to close the gap between energy supply and demand was built on a contract with the people amounting to a declaration that "we will accept social and environmental harm in return for cheap fuel to support our overall development," said Justin Guay, the Washington representative for the international climate program of the Washington, D.C.-based Sierra Club. The appeal of that trade-off has diminished considerably as coal's costs have risen. "Now they have no rationale for the projects."
In a report released in late June, the Sierra Club said runaway plant construction costs and rising global coal prices have made the plants financially risky investments. Australia and Indonesia control roughly 50 percent of steam coal exports, according to the report. Indonesia's rising export prices have been attributed to increases in coal-production tax rates and a new government pricing method.
While it's not surprising that environmental activists would disparage coal, the Indian government itself increasingly is recognizing the problem it faces. Indian Prime Minister Manmohan Singh earlier this year established a multiministerial committee to tackle the severe financial challenges facing the coal sector.
The Association of Power Producers, which represents more than 20 private power companies in India, recently estimated that more than 50 power projects accounting for 68,000 megawatts of capacity were at the risk of financial default. Some power companies, such as Adani Power, have tried to cancel long-term wholesale agreements to supply power to state utilities because of high coal prices. Cancellations would exacerbate power shortages, while reworked agreements could result in much higher utility rates for consumers and industries.
This month, Standard & Poor's lowered its outlook on Tata Power from stable to negative because of a loan-covenant breach on its Mundra project, which is only partly completed. Coal prices already have tripled from Tata's initial projections in 2006, according to the Sierra Club report.
The government's short-term response to the industry's financial woes has been to direct state-owned Coal India to guarantee coal supplies to power producers at lower prices. But those supplies generally are of low quality with high ash content.
Coal India, which is responsible for about 80 percent of the country's coal production, has been criticized for insufficient production to meet demand, as well as for mismanaging the country's resources.
The Asian Development Bank and the International Finance Corporation combined a few years ago to loan nearly $1 billion to help fund the Tata Mundra coal project. At the time, the IFC justified the project on the basis of the "limited availability and high prices of gas, hydro, and other renewable sources."
But experts say the playing field has changed.
Solar power now is less expensive than burning diesel for the first time in India, according to a recent Bloomberg news report based on its New Energy Finance data. It noted that the potential of solar power had caused billionaire Sunil Mittal to invest heavily in that market.
Daniel Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, and adviser to National Geographic's Great Energy Challenge initiative, noted that Germany recently hit a milestone: Fifty percent of its total electricity comes from solar. He and others suggest India could work toward a similar goal, using a combination of solar and wind energy.
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India's coal-intensive plan "certainly does not seem to make sense given that the Indian wind resource has now been reassessed to be a whopping 30 times larger than previously thought," Kammen said by email.
Renewable energy plays a minor role in India's energy portfolio, but the country has been credited with making strong strides in solar, small hydroelectric plants, and wind farms.
Public resistance to coal also is on the upswing, as negative impacts from mining and electricity generation are becoming clearer over time.
A protest against a coal plant project two years ago in Sompeta in the eastern coastal state of Andhra Pradesh turned violent, with two farmers killed by police and several others wounded.
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Community groups recently filed a complaint with the IFC that the Tata Mundra coal-fired project was based on "skewed" economics, and has destroyed large areas of mangroves, cut off access to grazing lands and salt-panning flats, and made it more difficult for the poor to get energy. An independent panel headed by a retired justice in India made similar allegations in a recent report, claiming Tata's environmental and social-impact assessments were deficient and the project had damaged the environment and fishing industry.
Neither the IFC's compliance office nor its South Asia office responded to a query for comment, but the IFC has visited the area to assess the complaint, according to watchdogs. Tata didn't respond to a reporter's inquiry, but in Indian press reports it has said that it has abided by all regulations, and has been working to help the community and to preserve the mangroves.
Dutta of the India People's Science Campaign, who was the primary author of the panel's report, said it's time for India to reconsider its energy strategy.
"If we take all costs (including environmental costs), wind is much cheaper than coal today, and solar will be so in a few years," he said. "New coal power plants will need years to come onstream and lock us in dirty energy for four decades. So, does that answer what the government of India could and should have done?"
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