Expert Speak Terra Nova
Published on Nov 28, 2023

Running with what is available is better than waiting interminably for the best option Thus, starting off with blue hydrogen will be ideal to hasten India’s energy transition.

Reality check: Coal energy transition

Energy transition projections remain dicey about phasing down coal mining and coal-based power generation. This is, unsurprisingly, the most difficult segment of the transition for India because coal reserves are the only fossil energy resource India has in abundance. Ten coal producers account for about 90 percent of global coal production—China-50 percent, India-10 percent, Indonesia-7 percent, United States (US) and Australia-6 percent, Russia-5 percent, South Africa-3 percent. Germany, Poland, and Kazakhstan are smaller producers. Of these, only China and India, have coal as the dominant domestic energy source.

The post-Ukraine war trend in “own shoring” energy resources would point to prioritising continued coal use in the industrial sector and for coal-based electricity to stabilise a renewable electricity heavy grid in future till 2050. India’s potential for solar and wind power is significant. The problem is their inherently variable structure of supply. The gaps in supply need to be filled by fail-safe and predictable energy supply and the grid needs to be strengthened—both entailing significant new investment.


Quick ramping up gas generation would have been ideal to address the gap in supply. But India is short on domestic gas reserves and imports violate the own-shoring rule of self-reliance. Pumped hydro storage can help by “time shifting supply—this means saving surplus power for later use at peak time. It is also relatively cheap, however, domestic capacity is limited. Hence, the search for grid-scale battery storage is ongoing since these are commercially available but expensive. However, costs could reduce significantly from INR 27 to 14 per kWh of energy supplied (2020) to between INR 7 to 14 per kWh of energy supplied by 2045 as production scales up. A doubling of cumulative capacity reduces cost by nearly 19 percent. A bigger problem is that prevalent battery chemistry trends favour the use of rare minerals which are not available in India. This, however, violates the self-reliance rule. To make things worse, China holds the key to access them via its contracted supply chains and dominant refining capacity. Wagering the future of China-India relations is an exercise fraught with even greater uncertainties than forecasting energy transition trends.

China holds the key to access them via its contracted supply chains and dominant refining capacity.

Coal with CCUS—the maverick policy option

Sans adequate energy storage capacity, the addition of renewable electricity would need to be scaled down. Coal-based power with Carbon Capture Use or Storage (CCUS) offers an option to battery storage. Coal power already plays a stabilising role in grid management. The only issue is with the accompanying carbon emissions. 

In August 2020 the Ministry of Power announced a target of 100 million tons of coal gasification by 2030. The only commercial-scale CCUS plant is at Jindal Steel Works, Angul. As per the Ministry of Coal, four projects are to be set up by Coal India Limited including ones through joint ventures—with BHEL, in two cases, to manufacture Ammonium Nitrate; with IOC to manufacture Dimethyl Ether (DME) and with GAIL to manufacture syngas (synthetic gas). Separately, Neyveli Lignite Corporation is also planning to set up a Lignite to Methanol CCU project. Private mine owners are being offered a 50-percent rebate in the “revenue share” of the government in coal production if they implement coal decarbonisation. 

Global CCUS scan

US government grants have supported CCUS technologies since 1972 seeking to enhance the efficiency of oil extraction by injecting CO2 into oil reservoirs. About 20 million tons of CO2 is used or stored annually in the US. China has also been supporting small CCUS pilot projects with about 2 million tons CO2 used or stored annually. President Xi Jinping announced in July 2023 that China would transition from regulating energy intensity to controlling the carbon intensity of consumption, thereby potentially, creating the demand for CCUS in coal power and hard-to-abate industrial sectors. In May 2023 Ministry of Power, GoI announced a scheme for carbon certificates as a market-based incentive to target CO2 emissions. National Thermal Power Corporation (NTPC)—India’s flagship, publicly owned, power generating company—is implementing a pilot CCUS at Vindhyachal (Madhya Pradesh) to convert the captured CO2 into methanol—an industrial input. ONGC—India’s flagship, publicly owned, oil exploration and development company—plans a CCUS storage project in Gujarat.

Two-thirds of India’s 144 million tons per annum crude steel capacity and 210 GW of coal-based power capacity have an age of less than 15 years and cannot be wished away.

A NITI Aayog report published in November 2022 posited that CCUS technology is a proven, albeit unscaled technology which could make coal mining and coal power generation climate action compliant. “Two-thirds of India’s 144 million tons per annum crude steel capacity and 210 GW of coal-based power capacity have an age of less than 15 years and cannot be wished away” it adds. 

Blue before green hydrogen

It also points to another use case for CCUS, to fast forward the hydrogen economy by induction of blue hydrogen—hydrogen (H2) derived from coal with capture of CO2 emissions by CCUS—as a substitute for coal in energy-intensive industries, well before green hydrogen—H2 derived from the electrolysis of water using renewable electricity—becomes viable some time by 2040. Presently, blue hydrogen costs one-third the price of green hydrogen. Starting with blue hydrogen, learning by doing, structuring supply infrastructure like pipelines and developing the demand in “hard-to-abate” clusters of energy-intensive industries for H2 could segue into transitioning to green hydrogen, once it becomes affordable. 

Why wait for Godot?

Dr V. K. Saraswat, the lead author, who is a NITI Aayog member and was earlier the Director General of the Defence Research and Development Organisation, has a point. Running with what is available is better than waiting interminably for the best option. The report estimates the subsidy for CCUS capacity of 750 million tons per year at INR 2.1 trillion by 2050. It is also unclear whether there is a net cost advantage in subsidising CCUS till 2050 versus battery storage or green hydrogen. There is a lengthy list of subsidy support before the government, including de-risking private investments in renewable electricity from power purchase payments default by discoms; supporting passenger transport electrification; supporting semiconductor assembly; strengthening the electricity grid; and supporting battery storage manufacture. With the fiscal deficit close to 50 percent higher than the normative 4 percent of GDP, the key fiscal priority is to compress expenditure to reduce the fiscal deficit and inflation. Only the best options must qualify for fiscal support, to ensure a least-cost transition.

Fiscal constraints urge the selection of low-risk energy transition technologies.

Unfortunately, the NITI report does not recognise the government’s fiscal crunch. Instead, it makes a case for reserving the clean coal cess for coal decarbonisation—a technically sound suggestion but bound to cause unease in the Ministry of Finance which, rightly so, dislikes non-fungible tax receipts. A firmer base to claim fiscal priority for CCUS would be on the grounds of technological maturity. If decarbonised coal is possible by 2035 the rush to highly energy-intensive green hydrogen (1 kg of GH2 needs 45 kWh of renewable electricity) might be premature as a public good. We can wait till electrolyser efficiencies improve and prices reduce, as they will before we adopt the technology. Meanwhile best to allocate renewable electricity to green the grid and decarbonise coal-based electricity using CCUS as the primary grid stabiliser.
Unstructured transitions are sub-optimal.

Institutionalising the energy transition can encourage more evidenced debate and decision-making. Entrusting one agency, with this task is better than splitting it across six ministries on the supply side, at least a similar number on the demand side, and the wider stakeholder group spanning India’s state governments, cities, institutions of technological excellence, industry, and consumers. Policy actions need to be determined on the run, based on verified techno-economic trade-offs across technologies and demand sectors, to ensure a least-cost transition.

Institutionalising the energy transition can encourage more evidenced debate and decision-making.

A single, professionally endowed, and administratively empowered agency, with technological roots in the areas and sectors likely to lead the transition, would bring the needed weight, expertise, and consistency, to a process spanning decades. An institutional innovation is long overdue.

Sanjeev Ahluwalia is an Advisor at the Observer Research Foundation

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Sanjeev Ahluwalia

Sanjeev Ahluwalia

Sanjeev S. Ahluwalia has core skills in institutional analysis, energy and economic regulation and public financial management backed by eight years of project management experience ...

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