India is bidding adieu to thermal plants: What happens to coal demand?

Banks around the world are increasingly deserting coal projects, from mining to power plants. And the case is no different in India. Coal is after all the most polluting fossil fuel and the biggest contributor to climate change. 

India is currently constructing 34GW of new coal capacity on top of its existing fleet of 233GW. Notably, a recent study by independent climate change think tank E3G has found that since 2015, 326GW of proposed coal projects in India have seen cancellations, which means a 92% decrease in the pipeline.  

The economics are also not favourable towards building new coal plants, which means India’s pre-construction pipeline of 21GW risks getting scrapped. India’s renewable power tariffs are among the lowest in the world. It has seen a remarkable increase in the capacity addition of renewable energy generation led by solar and wind power. 

Several power plants are set to be decommissioned in the coming years. Coal plants are normally decommissioned after the completion of their useful life, which could range anywhere from 25 to 45 years. 

The International Energy Agency estimates India’s coal demand to grow 4% annually till at least 2024. 

And a report by NITI Aayog in December said that coal-based electricity generation capacity in India is likely “to peak at about 250 GW” by the end of this decade or immediately thereafter whereas coal-based electricity generation will slow down, and likely peak a few years later.

Amid such forecast, an expert panel set up by NITI Aayog has proposed a scrappage policy for thermal power plants. Approximately 54GW of coal plants could be considered for retirement by 2030. 

What this means is that a reduction in thermal power generation capacity will not translate into lower coal consumption.

Existing power plants are in a comfortable position to absorb the growth in coal demand over the medium term, which could also improve their efficiency.

Since funding is hard to come by in the sector, new projects beyond those already under construction are unlikely to come up. This, however, will not mean that the end of coal is near even though it will grow at a much slower pace than renewable power generation.

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