We need an orderly transition from coal to renewables

Source: The post is based on an article “We need an orderly transition from coal to renewables” published in the Indian Express on 18^th July 2022.

Syllabus: GS 3 Infrastructure: Energy, ports, roads etc.

Relevance: Energy Security and Energy Transition

News: Since the onset of the pandemic and over the past few months, after the Ukraine-Russia war, commodity prices, especially that of energy, have surged worldwide, which has raised concerns over energy security.

Steps taken to measure inflation in the coal sector in India

Introduction of the national coal index (NCI) as the wholesale price index (WPI) for coal has no component of imported coal.

The NCT reflects international coal prices. It provides a benchmark for revenue-sharing contracts being executed after the auctions for commercial mining of coal.

Status of inflation in the coal sector

For the last six months, the WPI for Coal has been stable at around 131. Over the same period, the NCI has jumped from about 165 to about 238 reflecting the sharp increase in international coal prices.

Measures to address inflation in the coal sector in India.

The domestic coal industry has responded with an increase of over 30% in coal production from April to June to reduce the exposure of the domestic economy to the price volatility of international markets.

The government has permitted commercial mining and allowed the private sector to produce more coal.

What are the measures needed to make the above-mentioned steps more effective?

First, The Ministry of Power needs to finalize its draft National Electricity Policy 2021 as the policy is poised to articulate the importance of domestic coal-based generation in the country.

Second, the financial community has to be sensitised to the need of increasing domestic coal production to meet the growing energy demand. The industry and financial community should adopt a more holistic approach toward environmental, social, and governance (ESG) criteria.

Third, the regulator should address the issues arising from a greater role of the private sector in coal production. There should be a single point of contact for the industry in the form of a dedicated regulator. It would help the new private commercial miners to overcome problems that could arise in due course.

Fourth, in addition to increasing domestic production of coal, there is a requirement to ensure diversification of the production base and improvement in the quality of the coal produced in India.

Fifth, there is a need for reforms in various cross subsidies which cause undue financial burden on the coal sector.

Way Forward

Although coal is a major cause in GHG emissions. But it is unavoidable for India’s energy security in the near future. Therefore, there is a need to adopt processes for orderly transition from coal to 500 GW of renewables.

However, high prices of coal and coal-based generation may encourage import of coal and it will expose us to international energy prices fluctuation. Therefore, there should be increased focus on domestic production of coal.