5 July 2012 - The Indian power industry must cut its dependency on coal by encouraging alternative energy sources, ensuring enhanced energy security for the future, according to a new report by energy expert GlobalData. The report cites the Indian government’s orders to the country’s largest state-run supplier, Coal India Limited (CIL), as a desperate move which will not save the industry.

CIL must sign fuel supply agreements with utilities, in hopes that this will push the monopolistic company to boost its output and ease the current coal supply shortage. However, this will not be enough to ease looming coal shortages. The directive states that CIL, the world’s biggest coal miner, must sign contracts to supply at least 80% of the required coal to fuel-starved power utilities, risking a penalty of 0.01% of the shortfall in supplies to the utilities. However, this penalty will only apply after three years, and will therefore have no short-term effect on the coal supply shortage. CIL dominates the domestic coal scenario in India, and it’s near monopolistic position results in supply bottlenecks and delays in coal field development. There is a growing need for a transparent and credible coal pricing policy based on global norms.

Foreign policies also let India’s coal industry down. Indonesia accounts for 50% of India’s coal imports, and a new Indonesian policy stipulating the benchmarking of coal prices to international market rates will likely increase the cost of imports dramatically. Indian power generating companies have sought government intervention in this new law, claiming it will make imports economically unviable. Australia, which accounts for 5% of India’s coal imports, has also issued a draft mining law to impose tax on coal and iron ore projects from next year. The Association of Power Producers (APP), a group of 13 private companies, has asked again for government intervention, and has requested that the power ministry set up an expert committee to find appropriate solutions to tackle the rise in import rates. However, until the Indian government supports the coal industry or offers renewables as a suitably enticing alternative, the country seems set to keep on struggling.

The country’s planning commission’s presentation paper for the 12th five year plan (2012-2017) talks of diversifying into alternative energy sources to limit the country’s carbon footprint, achieve energy security, and diversify its energy mix. India is actively seeking to develop nuclear power, which is attractive in environmentally conscious countries desiring energy security where demand for energy is growing at a fast pace.

India has 20 operational commercial reactors, while five more are under construction. It is expected that India will add about 19,350 MW of nuclear power by 2020, and the nuclear fuel, technology and related trade with India will be worth about US$100 billion for the coming two decades, and this trend shows that present developments may enhance the role of nuclear power, providing energy security and addressing growing environmental concerns.