With media interest on the coal scandal finally waning, questions about how imported coal will be integrated into the country’s energy mix have returned to occupy a central place in the discourse.Imported coal remains a paradox for India. Over the next five years, the need for imported coal is likely to at least double to about 200Mt. Imported coal, however, will play a supplemental role filling the supply gap left by domestic coal.
New power plants prefer to design their plants for domestic coal. Only a third of India’s demand for imported coal will come from plants designed specifically for higher quality imported coal. That’s because domestic coal is significantly cheaper.
Electricity sold from domestic coal will always be bought. On the other hand, distribution utilities may not always buy the electricity produced from imported coal. This is not because distribution utilities don’t need the power, but because electricity from imported coal is expensive. In many cases, utilities would rather let the electricity demand go unmet (blackout) than pay those higher costs. As a result, power plants receiving domestic coal enjoy a significant relative advantage.
India’s paradox on imported coal is that while large volumes of imported coal will be needed in the future, no power plant wants to build a plant predicated on imported coal. The race is very much for domestic coal, even though it is almost unanimously accepted that there won’t be enough to go around.
India is struggling with how to integrate imported coal into the power mix in a situation where nobody wants it but everyone needs it.
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