What is the cost of burning India’s coal reserves? And should that cost be added to the equation when determining whether to switch to renewables? This is a preliminary thought-piece. The thought goes like this: fossil fuels are burned and gone. Renewables are – as the name suggests – unlimited. Could coal be used more sparingly for purposes other than generating electricity? Perhaps not now, but in the future?
- Depleting a strategic resource like coal comes at a cost that might not be fully understood today
- Renewables do not deplete a strategic resource
- Is this a strong argument for accelerating the shift towards renewables?
Traditionally, when we compare renewables to fossil fuels in power generation, we look at the Levelized Cost of Energy (LCOE). Or, more simply: we look at the market tariff offered by power generators using different fuels. This measure is inclusive of a messy chain of direct and indirect subsidies and costs added through government policies and regulations. If you take this measure, coal is still India’s fuel of choice. Depending on where the coal comes from, it is brought to market at rates between 1.5 and 4 INR/kWh. Wind and hydro power, would be slightly more expensive. Solar – which is practically unlimited in resource – is currently sold at 7 to 8 INR/kWh, which 2 to 5 times more expensive than coal.
Comparisons between different fuels are complex. One has to look at running plants at optimal loads, at investment cycles, future fuel prices, at how the grid infrastructure is used, at the quality of power generated, etc. Also, one should include the externalities: the local environmental costs of mining, air pollution, building dams, and (perhaps) the global carbon cost. A full analysis would have to take these factors into account, but I would like to keep it simple here and just add one layer to the cost comparison: the fact that coal is limited and renewables are not. What does that mean in terms of cost and national strategy?
A study by the World Future Council (refer) has estimates the global ‘future usage loss’ of using oil, gas and coal for power generation at over 3.2 trillion USD/year. This is essentially the opportunity cost of not being able to use these resources for alternative, industrial purposes. Is this relevant for India? If the best use of coal in India is for power generation, i.e. if this is where coal currently creates most value, then so be it? The answer is probably ‘yes’, if one looks only at the market as determinant of (monetary) value. If however, coal is attributed a national, strategic value, the answer might be ‘no’.
What could this value be? Coal has certain properties that might be needed for very specific products and purposes. If it is burned and converted into electricity, these specific properties are lost. The end product, electricity, carries no DNA. Could it be better to use coal in ways that more fully leverage its properties? India might not yet have all the industries that need coal-based components, but as it industrialises, it increasingly will. These are some of the non-energy uses of coal as per the World Coal Association (refer): alumina refineries; paper manufacturers; a number of chemical products such as phenol or benzene; soaps, solvents, dyes, plastics and fibres sich as nylon. In addition activated carbon is used in water and air filters. Coal is used for silicon metal for various products such as lubricants, repellents or cosmetics. Most interestingly, coals is used for carbon fibre, a key meterials technlogy of the future with unique properties of light weight and strength. Should coal be given an industrial policy value?
In addition, there is a strategic resource management value. Compare coal to oil, which is much more scarce in India and more strongly embedded in our minds as a strategic resource. Firstly: domestic coal can provide India with a last resort energy security. It is locally available and can be extracted and burned at any time. India should have a strategic reserve in the same way that it has a strategic reserve of oil. Secondly: perhaps it might be better to sell the coal in future than to burn it? Coal prices have risen across the world. Saudi Arabia understood this for oil. It finds it more lucrative to develop renewables for its power needs and sell the oil thus saved to other countries at a high price (refer). As mentioned before, this is an open-thought process. I would appreciate feedback.
Tobias likes to write about solar business models, solar and energy policy and wider issues of sustainability, development and growth.
What are your thoughts? Leave a comment below.
