Net Zero Emissions at Net Zero Cost?

Lydia Powell & Akhilesh Sati, Observer Research Foundation

A large section of the ‘civil society’ in the West appears to be disappointed with the efforts of the United Nations in controlling carbon emissions. This is probably why this section of the civil society has decided to take matters into its own hands and spawn groups that are designed to treat emitting carbon or extracting fossil fuels that could potentially emit carbon when burnt as a socially unacceptable activity comparable to the practice of apartheid.

The Carbon Tracker Initiative (CTI) that targets listed fossil fuel companies is the first off the block among such groups and it targets investors in fossil fuel companies. The group’s scathing reports argue that the fossil fuel resources under listed companies are likely to become sub-prime assets and that the sooner investors divest their interests in these companies the better off they would be financially. CTI’s most recent report ranks countries with the most inefficient coal based power generating plants and India is ranked third after China and the United States. Naming and shaming supposedly irresponsible countries is part of the strategy of CTI. (please refer to Death Warrant for Fossil Fuels?- Energy News Monitor, Volume XI Issue 33).

350.org, another such civil society movement claims that it is building a global climate movement against fossil fuels. The number 350 in its name stands for the reduction in the amount of CO2 in the atmosphere required from the current level of 400 parts per million (ppm) to keep global average temperature increase within 2ºC. According to 350.org’s web page, its online campaigns, grass-roots movements and mass public action against fossil fuels is co-ordinated by a global net-work active in 188 countries.

Civil society organizations against fossil fuels draw their inspiration from successful divestment campaigns that targeted violence in Darfur, tobacco advertising and the South African apartheid. The campaign against apartheid is supposed to have convinced 155 campuses including the most famous in the United States to divest their interest in companies doing business in South Africa. 26 state governments, 22 counties and 90 cities withdrew their money from multi-national companies operating in South Africa. All this is believed to have played a role in breaking the back of the apartheid regime.  So far, the movement against fossil fuels is said to have convinced 26 universities, 42 cities, 2 counties, 71 churches and 17 other institutions including the Rockefeller Foundation to withdraw their money from fossil fuel companies.

Track 0 which is the newest civil society movement against fossil fuels aims to convince businesses to work towards the goal of net zero emissions by mid-century. Track 0 has already found a place in the news room of UNFCCC’s web page and the foreword to the first report by Track 0 is written by Mary Robinson, UN Secretary General’s special envoy on climate change.

The endorsement of civil society action against fossil fuels by the UN is a matter of concern for developing nations that are committed to negotiating a fair distribution of responsibility in limiting carbon emissions through accepted principles enshrined in the UNFCCC. Civil society movements operate outside these accepted principles. As these civil society movements are focussed on the narrow instrumental goal of limiting carbon emissions, they are unconcerned about intrinsic values such as equity and fairness. Their single minded focus on limiting carbon emissions does not leave any room for concern over the disproportionate cost mitigation action will impose costs on the poor who are in no way responsible for carbon in the atmosphere.

A cardinal error in assumptions that underpin civil society movements against fossil fuels is that they presume that they are external to the problem as in the case of movements against apartheid or tobacco use. All are implicated when it comes to fossil use and this is something anti fossil fuel movements fail to acknowledge. If the civil society organisations want to be external to the problem and declare themselves to be fossil fuel free, they have to give up almost everything that sustains their life including most food products as they are produced using fossil fuel based fertilisers and transported using fossil fuels. They also have to give up the bicycles they pedal as they are made with materials extracted, transported and transformed using fossil fuels. They may even have to give up their web based campaign against fossil fuels because it is almost entirely dependent on fossil fuels. Computers, phones, servers and other assorted information technology devices are all made from fossil fuel derived petrochemicals and are fuelled by energy derived from fossil fuels.

Farhana Yamin, Founder & CEO of Track 0 makes the business case for reducing net emissions to zero by 2050 using the argument that the cost of reducing emissions to zero is low or negligible. The evidence is taken from the synthesis report of the fifth assessment report of the IPCC. The synthesis report observes that estimates of the aggregate economic costs of mitigation vary widely depending on the methodologies and assumptions and that the costs increase with the stringency of mitigation.

In order to estimate the cost of mitigation, the synthesis report assumes a world in which all countries begin mitigation immediately with a single carbon price and in addition assumes that there is no restriction on technology. This ideal world is treated as the cost effective bench mark for estimating macro-economic mitigation costs. In presenting the cost, the synthesis report uses figures for ‘loss in global consumption’ rather than ‘loss in economic growth’ which most other reports use.  This ‘loss in global consumption’ apparently does not include benefits of reduced climate change or co-benefits of mitigation or what the report calls ‘adverse side-effects’ of mitigation.

Under these assumptions the annualised reduction of consumption growth is estimated to be between 0.04 and 0.14 percent over the century relative to annualised consumption growth in the base line scenario which is estimated to be between 1.6 and 3 percent per year. Massaging the data with unrealistic assumptions may yield attractive numbers to make the case against fossil fuels but that does not make it undisputable scientific fact.

Net zero emissions is not a matter of the right social choice as it was in the case of apartheid nor is it costless as the reports by the civil society organisations claim. Honest zero emission lifestyles can take us back to pre-historic lifestyles. Not even the most fundamentalist civil society organisation against fossil fuels is likely to opt for such a lifestyle. These organisations have no right to demand from others what they have not embraced.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 41

Advertisements

US CRUDE FLOWS TO INDIA

Monthly Oil News Commentary: July – August 2017

India

Outlook for the Indian upstream sector remains negative for the near to medium term due to soft crude prices, rating agency ICRA said. The rating agency expects the profitability of domestic upstream companies, to be subdued in the near to medium term. OPEC had in November agreed to cut total crude oil production of its member countries by 1.2 mbpd from January 2017 which had led to a spike in global crude oil prices by 15-20 percent to levels of $55-57/barrel. The rating agency does not see any tailwinds for the gas segment in India. Weak crude prices, however, is expected to lead to a further decline in gross under recoveries for oil marketing companies.

India’s upstream petroleum regulator DGH has received as many as 45 EoI in a little over a month for various fields to be bid out under the mega O&G auctions in what analysts called an “encouraging response”. The oil ministry had made the auction live on 1 July, offering over 85 percent of the country’s 3.14 million square kilometres of hydrocarbon sedimentary area under a new bidding mechanism – OALP, and a revamped HELP. The government aims at awarding fields under the new regime by December this year. The new OALP bidding mechanism under HELP allows investors to bid for oil and gas fields throughout the year. The current auction under HELP follows the just-concluded DSF bidding rounds under which 31 blocks were awarded to around two dozen mostly small-sized firms.

Set with a steep target to cut India’s oil imports by 10 percent by 2022, the oil ministry has formed an inter-ministry monitoring and advisory body to achieve the mark through a combination of raising domestic output and relying on alternate fuel sources. The first meeting of the newly formed IMAC was held wherein the progress on import reduction of oil and gas was reviewed. India’s reliance on imports for meeting its oil needs is to be reduced by 10 percent to 67 percent by 2022. IMAC was envisaged to facilitate better coordination and comprehensive strategy for all energy resources by focusing on supply and demand side management.

IOC has bought the country’s first shale oil from the US and is looking to step up imports from America as part of its crude diversification strategy. IOC bought 1.9 million barrels of US crude in its second import tender seeking oil from the Americas. IOC had last month sealed a deal to import 1.6 million barrels of Mars crude from the US and 400,000 barrels of Western Canadian Select oil for delivery at its Paradip refinery in Odisha, the first ever such purchase of US crude by an Indian state-run refiner. The first cargo was loaded on ships on August 7 and would after a 40-day journey reach Paradip sometime around September 20. IOC has received government nod for buying one cargo (or shipload) of US oil every month till March 2018. India allows import of crude oil only on Indian carriers but US oil can be imported only on foreign vessels. So a special permission is needed for using foreign-flagged ships for ferrying the oil.

As per present policy, when a domestic refiner tenders to buy a crude from foreign nation, Indian shipping lines get the first right of refusal by virtue of they being allowed to match any lowest bidder for transportation of crude oil. Only when they waive their right can the oil firms use a foreign line. Transporting US crude needs very large crude carriers and can be done only by foreign shipping lines. And to do that, oil companies have to obtain permission of the shipping ministry. BPCL has bought two of the US cargoes. A few days ago it bought 1 million barrels of US WTI Midland sweet crude for delivery in October – its first purchase of the sweet variety from the US. In July, it bought 500,000 barrels each of Mars and Poseidon varieties of medium-to-high-sulphur crude for delivery to its Kochi refinery between September 26 and October 15. HPCL is also looking at buying US crude oil. Buying US crude has become attractive for Indian refiners after the differential between Brent and Dubai crude has narrowed. Even after including the shipping cost, buying US crude is cost competitive to Indian refiners.

India is the latest Asian country to buy US crude, following South Korea, Japan, China, Thailand, Australia and Taiwan, after OPEC cuts drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content.  Indian refiners are diversifying their crude import sources as arbitrage opportunities have opened due to global oil supply cuts. Some experts said that these purchases were motivated by political rather than market forces as they were the result of US president requesting the Indian PM to buy more US energy products.

The country’s fuel demand grew by over 1 percent in July as consumption of diesel and petrol rose. Fuel consumption in July totalled 15.8 mt as compared to 15.63 mt in the same month of last year, data from the PPAC showed. The growth was higher than the 0.4 percent recorded in June when consumption of industrial fuel had dipped. Oil demand has been erratic this fiscal, growing by 6.1 percent in May and 2.4 percent in April. For July, diesel sales were up 8.5 percent at 6.3 mt while petrol consumption was up 11.6 percent at 2.14 mt. With a record number of free cooking gas connections being doled out, LPG sales were up 12.5 percent to 1.92 mt. Since launch of the scheme to provide free LPG connections to women of poor households in May last year, more than 26 million connections have been given. Naphtha sales fell 30 percent to 833,000 tonnes. Consumption of bitumen, used for making roads, also dipped 8 percent to 255,000 tonnes. Oil demand had plunged 5.9 percent in January, the most in 13 years, after the shock demonetisation of high-value currency notes in November. Demand fell 3.1 percent in February and 0.7 percent in March before rebounding in April.

India’s state oil refiners – long focused on churning out transport and cooking fuels – are planning a $35 billion push into petrochemicals to meet an expected surge in demand for goods ranging from plastics to paints and adhesives. The drive comes as the government seeks to promote durable, cheaper materials in industries such as farming and food packaging, while refiners eye long-term threats to their business from renewable energy and a shift to electric vehicles. The government wants to set up petrochemical clusters in the eastern, western and southern regions around refineries. The government is formulating a national policy for petrochemicals after a white paper that proposed a fund to boost investment and encouraging the use of plastics in areas like packaging and farming wasn’t taken forward. However, India’s big three state refiners, IOC, BPCL and HPCL already plan to spend about $35 billion to boost their petrochemicals business.

The Supreme Court held that the process of bottling of LPG cylinders meant for domestic use is an activity which amounts to ‘production’ and ‘manufacturing’ and is liable for income tax deductions. The apex court also accepted the views expressed by various high courts from time to time that bottling of gas into cylinder amounts to production and liable for claim of deduction under Sections 80HH, 80-I and 80-IA of Income Tax Act. The Income Tax Appellate Tribunal order, which was also affirmed by the high courts, has held that LPG produced in the refineries cannot be directly supplied to households without bottling of the LPG into the cylinders and insofar as LPG bottling is concerned, it is a complex activity, which can only be carried out by experts. The apex court noted that after the bottling activities at the plants, LPG is stored in cylinders in liquefied form under pressure and when the cylinder valve is opened and the gas is withdrawn from the cylinder, the pressure falls and the liquid boils to return to gaseous state. The court said that it is apparent that the LPG obtained from the refinery undergoes a “complex technical process” in the assessees’ plants and is clearly distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers.

Home-delivery of petrol and diesel will be a reality soon with the government-owned fuel retailers in advanced talks with PESO on formulation of safety norms and issuance of licenses. ANB Fuels, under the brand MyPetrolPump, had launched first-of-its-kind home delivery of diesel in Bengaluru with three delivery vehicles in June. The company had to suspend its operation within four days of its launch due to a circular issued by PESO to oil companies directing it not to supply fuel to the start-up citing safety reasons.

The government has taken further steps to gradually reduce subsidy on kerosene, continuing the series of market-oriented reforms that have galvanised the petroleum sector and attracted big-ticket investment after an era of excessive controls, controversies and untargeted subsidies that made it difficult for private companies to operate. In a recent communication, it has asked state oil companies to keep raising prices of subsidised kerosene by 25 paise every fortnight until the subsidy is eliminated, or until further orders. The oil ministry had earlier ordered a similar increase only up to July this year. The fuel is still heavily subsidised but demand for kerosene is falling sharply because villages are being rapidly electrified and the government has supplied cooking gas connections to crores of poor people in the past three years. Delhi and Chandigarh are already kerosene-free cities. Subsidised kerosene is also misused to adulterate diesel. After diesel and LPG, government to now end subsidy on kerosene. The price of cooking gas is also being increased gradually to eventually align it with market rates. The government has been aggressively discouraging use of subsidised kerosene, mainly used by the rural poor for lighting and cooking, as it is a polluting fuel and sometimes ends up as an adulterant at petrol pumps. By cutting subsidies, the government is bringing the commodity closer to the market price, which will eventually stop diversion for adulteration as well as encourage consumers to switch to the cleaner LPG. Kerosene and cooking gas are the only fuels currently subsidised by the government.

The government’s latest move to increase subsidized LPG prices by ₹ 4/cylinder/month is a major positive move and would lead to savings of the order of ₹ 30 billion annually, according to research and ratings firm ICRA. The OMCs have been allowed to hike the prices till the reduction of government subsidy to nil or till March 2018 or till further orders. As per the existing under-recovery sharing formula, the centre bears the domestic LPG subsidy up to ₹ 18/Kg (around ₹ 255/cylinder) under the Direct Benefit Transfer for LPG (DBTL). For the month of July 2017, the subsidy on domestic LPG was ₹ 86.5/cylinder, which is lower than the threshold level of ₹ 255/cylinder due to low international prices and regular retail price increase in the recent past, providing comfort to PSU oil companies. As domestic LPG under-recoveries up to ₹ 255/cylinder are expected to be borne by the centre, the major benefit from the fall in GURs on domestic LPG would accrue to the government. Also, the benefit of lower GURs due to the move would increase with the rise in subsidised LPG consumption volumes, which has consistently shown double digit growth over the last few years due to various promotional initiatives by the centre. As the centre aims to deregulate LPG prices by reducing subsidy level to nil, the risk related to material under-recovery burden on OMCs or PSU upstream companies in a high crude price scenario has reduced significantly, which is a major positive for PSU oil companies in case oil prices increase beyond $65 per barrel over the long term. The step to gradually increase subsidised LPG prices is a positive move for the OMCs as they would gain from the marginal savings on interest burden due to lower GURs. Besides, the domestic LPG subsidy was expected to touch the threshold level of ₹ 255/cylinder at an Indian Basket crude oil price of $65 per barrel and beyond that level of crude oil prices either consumers or upstream or downstream oil companies would have borne GURs on domestic LPG.

Mjunction services limited, one of the country’s largest e-commerce companies and a 50:50 joint venture between Steel Authority of India Ltd and Tata Steel, has been appointed by the DGH to build a platform for e-bidding, e-evaluation of bids, and e-allocation of O&G fields. This will enable transparent allocation of natural resources, and help reduce the country’s oil import bill by $8 billion annually, mjunction said. DGH is the nodal agency under the oil ministry for allocation of O&G fields to interested bidders for exploration and production activities. mjunction will customise its e-bidding software to provide facilities to electronically receive and evaluate bids and to automatically allocate O&G fields under the HELP framework, which was introduced in 2015. HELP replaced the 18-year-old NELP, and is expected to remove its various limitations which led to inefficiencies in exploiting natural resources.

Rest of the World

World oil demand will grow more than expected this year, helping to ease a global glut despite rising production from North America and weak OPEC compliance with output cuts, the IEA said. The agency raised its 2017 demand growth forecast to 1.5 mbpd from 1.4 mbpd in its previous monthly report and said it expected demand to expand by a further 1.4 mbpd next year. The OPEC is curbing output by about 1.2 mbpd, while Russia and other non-OPEC producers are cutting a further 600,000 bpd until March 2018 to help support oil prices. The IEA said OPEC’s compliance with the cuts in July had fallen to 75 percent, the lowest since the cuts began in January. The IEA also revised historic demand data for 2015-2016 for developing countries, cutting it by 0.2-0.4 mbpd. As a result of those historic revisions, the IEA cut baseline demand figures for 2017-2018 by around 0.3-0.4 mbpd and hence lowered demand for OPEC crude by the same amount.

OPEC oil output has risen this month by 90,000 bpd to a 2017 high, a survey found, led by a further recovery in supply from Libya, one of the countries exempt from a production-cutting deal. A dip in supply from Saudi Arabia and lower Angolan exports helped to boost OPEC’s adherence to its supply curbs to 84 percent. While this is up from a revised 77 percent in June, compliance in both months has fallen from levels above 90 percent earlier in the year. The extra oil from Libya means supply by the 13 OPEC members originally part of the deal has risen far above their implied production target. Libya and Nigeria were exempt from the cuts because conflict had curbed their production. As part of a deal with Russia and other non-members, the OPEC is reducing output by about 1.2 mbpd from January 1, 2017 until March next year.

Saudi Arabia wants to do more to boost crude oil prices by taking a razor to its exports, but the kingdom is already doing much of the heavy lifting in Asia, where it is surrendering market share in the world’s top importing region. Saudi Arabia would limit crude oil exports to 6.6 mbpd in August, almost 1 mbpd below levels a year ago. This commitment is belated recognition that OPEC and its non-OPEC allies, including Russia, have to do more than just comply with their November agreement to cut output by a combined 1.8 mbpd. For the output restrictions to work by draining global oil inventories, the producers will also have to curb exports. Vessel-tracking data and other service providers suggest that cuts to exports in the first half of 2017 by OPEC and its non-OPEC allies haven’t matched the reductions in stated output. However, data from Asia’s top two oil importers, China and India, show that Saudi Arabia is already taking much of the pain by cutting the amount of crude it supplies. China imported the equivalent of 8.56 mbpd of crude in the first half of 2017, up 13.8 percent on the same period a year earlier, according to calculations based on customs data. Of this Saudi Arabia supplied 1.07 mbpd, a gain of just 0.5 percent over the first half of 2016. This meant that Saudi Arabia, which was China’s top supplier in 2015 and was only just pipped by Russia last year, has now slipped to third. Russia supplied 1.18 mbpd in the first half, an increase of 11.3 percent from a year ago that saw it maintain its top position, while Angola leapfrogged into the second spot with 1.09 mbpd, a jump of 22 percent from the first half of 2016. Both Russia and Angola are party to the agreement to restrict output, as is Iraq, which boosted its supplies to China by 5.6 percent in the first half to about 720,000 bpd, becoming the fourth-largest source of oil imports.

Global oil demand could peak as early as 2024 if there are more efficiency gains in vehicles, greater market penetration by electric cars, lower economic growth and higher fuel prices, Goldman Sachs said in a research note on refining. Economic expansion in emerging markets may stave off reaching a peak until 2030, although demand growth will still slow over the next decade given improving mileage in cars and trucks and the greater use of electric vehicles, research analysts from the investment bank said. The global electric fleet, for instance, is expected to grow more than 40-fold to 83 million vehicles by 2030, from 2 million in 2016, the researchers said in the note. Goldman Sachs projects annual oil demand growth between 2017 and 2022 at 1.2 percent, slowing to 0.7 percent by 2025 and to 0.4 percent in 2030. Oil demand grew by an annual average rate of 1.6 percent over 2011 to 2016. Over the period to 2030, the transport sector will contribute less to oil demand growth. Petrochemicals will instead become more central, although with more feedstock coming from outside the refining system, such as from natural gas liquids, refiners’ share in oil demand will fall, they said. The analysts also said there will likely be a surplus of refined oil products for the next five years due to higher capacity additions and slowing demand growth, implying lower global utilization rates and poorer margins. The impending 2020 global sulphur limit set by the IMO on high sulphur fuel oil is also expected to reshape the refining industry, the bank’s analysts said. If fully implemented, the limit will boost diesel demand and widen the sweet-sour crude differential, which is positive for the profitability of complex refineries, they said. Meanwhile, jet fuel and LPG are gaining market share at the expense of products like fuel oil. Demand growth for LPG, fastest among all oil products, is being driven by petrochemicals and use in India as a cooking fuel in homes, the analysts said. The share held by gasoline and diesel in the overall oil demand mix between 2016 and 2030 will stagnate, they said.

The US is considering financial sanctions on Venezuela that would halt dollar payments for the country’s oil. The move could severely restrict the OPEC nation’s crude exports and starve its socialist government of hard currency. Sanctions prohibiting any transaction in US currency by Venezuela’s state-run oil firm, PDVSA, are among the toughest of various oil-related measures under discussion at the White House. The US measures under discussion are similar to those that were imposed against Iran over its nuclear program – which halved Iran’s oil exports and prevented top crude buyers from paying for Iranian oil. The US bought 780,000 bpd of Venezuelan crude and refined products in the first four months of 2017, according to the Energy Information Administration, nearly 8 percent of total imports. PDVSA is a major supplier to Valero Energy, Phillips 66, Chevron Corp and PBF Energy. PDVSA’s cash flow has plummeted in recent years, in part due to the Venezuelan government’s deals to barter its oil to other nations in exchange for fuels, services and loans.

Asia would be the biggest beneficiary of any potential sanctions by US on Venezuela’s oil sector, traders and analysts said, as exports from the South American OPEC member could be redirected to the region, filling a vacuum left by producer supply cuts. An embargo against Venezuelan crude could block imports of about 740,000 bpd to the US. Asian refiners would welcome the so-called heavy, or higher density, crude since production cuts by the OPEC have mainly curtailed this type of oil. At the same time, the start-up of new refining capacity is boosting demand. China and India, the two biggest buyers of Venezuelan crude after the US, have room to increase imports while other north Asian refiners, with equipment sophisticated enough to handle heavy Venezuelan oil, are seeking opportunities to tap this supply, analysts and traders said. In the first quarter of 2017, Venezuela delivered to Chinese companies about 485,000 bpd of crude and oil products to repay loans extended since 2007, according to internal documents from state-run oil company PDVSA. Russian oil firms Rosneft and Lukoil are also receiving about 250,000 bpd to repay loans, according to the PDVSA. PDVSA has cut sales to US refining unit Citgo Petroleum since May to increase its supply to Rosneft in order to catch up on overdue Russian deliveries.

Tankers carrying LPG are floating off Singapore for the first time this year as traders wait for opportunities to offload the fuel at more lucrative prices. At least one VLGC, the Pacific Binzhou, is anchored in Singapore carrying LPG, shipping data showed. The ship docked more than five days ago. One other VLGC had recently left for China after anchoring off Singapore for some time, but this could not be independently verified. LPG supply is not as excessive as last year, trade sources said, due to demand from India and China this year. In August last year, more than 10 ships were holding LPG – whose uses include heating, cooking and petrochemicals production – off Singapore for months before they could find buyers in winter. There is less incentives to store LPG this year as the contango is not more than $2 versus last year when it was more than $15, traders said.

The EIA said it expects US crude oil production in 2018 to rise by less than previously expected. The agency forecast that 2018 crude oil output will rise by 560,000 bpd to 9.91 mbpd. Last month, it expected a 570,000 bpd year-over-year increase to 9.9 mbpd. For 2017, it forecast a rise of 500,000 bpd to 9.35 mbpd. Last month, it expected a 460,000 bpd increase to 9.33 mbpd, according to the EIA. Meanwhile, the agency forecast that US oil demand for 2017 is set to grow by 340,000 bpd compared with a 310,000 bpd previously. For 2018, oil demand is expected to rise by 330,000 bpd vs 360,000 bpd previously.

World trade is growing again which will give a big boost to middle distillates such as diesel used in the high-power engines that move almost all freight. World trade volumes grew by 5 percent in the three months to May compared with the same period a year earlier, according to the Netherlands Bureau for Economic Policy Analysis (CPB). Trade growth came close to a standstill in the first quarter of 2016 but has been accelerating gradually since then especially from the fourth quarter onwards. Volumes are now rising at the fastest rate for six years though growth is still comparatively slow in historical terms. Growth has accelerated in all regions, with the exception of Africa and the Middle East, where economic activity is still depressed owing to low oil prices.

Oil price agency S&P Global Platts is mulling changes to its Singapore gasoline price assessments ahead of more stringent fuel standards being considered in Malaysia and Indonesia. Platts, a unit of S&P Global Inc, said it is reviewing the specifications of its assessments for free-on-board Singapore gasoline 92-octane, 95-octane and 97-octane. Malaysia is targeting October 1, 2018, to implement Euro 4M gasoline specifications for its 95-octane gasoline that would limit sulfur to 50 ppm from the current 500 ppm, Platts said. Asia’s top gasoline importer Indonesia is expected to move to Euro 4 gasoline specifications from Euro 2 by October 2018, the pricing agency said. That would also limit sulfur to a maximum of 50 ppm. Implementation in Indonesia, however, could take longer as state-owned Pertamina said in June that it plans to delay some refinery upgrades and a new project due to financing issues. Platts last made changes to gasoline specifications in July of last year. The company is requesting for feedback from its clients by September 29.

Russia’s attempts to establish a futures market for its flagship Urals oil grade are faltering due to lack of support from international trading houses and the scarcity of oil on offer. Russia launched trading of a futures contract for Urals oil URL-E in Moscow in November, to secure greater prominence for its export blend. But the taxation and clearing process have not been fully thought through. Russia had long called for the creation of a Urals futures contract, because Urals is sold at a discount to benchmark Brent crude. For Western trading houses, it is much easier to buy oil directly from producers via tenders or pre-financing operations, which often promise discounts and guaranteed volumes. Vitol, Glencore and Trafigura are key global oil traders working on the Russian market, taking more than half of Urals’ seaborne export volumes from Russia. The Urals’ futures market was launched at a time when Russia has been the target of economic sanctions imposed by United States and European Union over its actions in eastern Ukraine, although oil trading is not under sanctions.

PetroChina is unloading the first Chinese purchase of crude oil from US strategic petroleum reserves at a port in eastern China, according to shipping data. The move comes as China, the world’s No.2 oil consumer, steps up imports from the Americas to diversify supply sources. PetroChina unit, PetroChina International America Inc, bought the 550,000 barrel cargo of Bryan Mound sour crude in a sale from US strategic petroleum reserves in March for $28.8 million. Supertanker Cosrising Lake, chartered by PetroChina, is unloading the US oil at Qingdao port in Shandong province, shipping data showed. PetroChina is one of the key players moving Americas crude to Asia. It recently sold India that country’s first US crude import via an Indian Oil Corp tender.

US: United States, DGH: Directorate General of Hydrocarbons, IOC: Indian Oil Corp, BPCL: Bharat Petroleum Corp Ltd, HPCL: Hindustan Petroleum Corp Ltd, mt: million tonnes, mbpd: million barrels per day, OPEC: Organization of the Petroleum Exporting Countries, EoI: Expressions of Interest, bpd: barrels per day, O&G: Oil and Gas, OALP: Open Acreage Licensing Policy, HELP: Hydrocarbon Exploration Licensing Policy, NELP: New Exploration Licensing Policy, DSF: Discovered Small Fields, IMAC: Integrated Monitoring and Advisory Council, WTI: West Texas Intermediate, PM: Prime Minister, PPAC: Petroleum Planning and Analysis Cell, LPG: Liquefied Petroleum Gas, PESO: Petroleum and Explosives Safety Organization, OMCs: Oil Marketing Companies, GURs: Gross Under-Recoveries, PSU: Public Sector Undertaking, ppm: parts per million, IMO: International Maritime Organisation, IEA: International Energy Agency, EIA: Energy Information Administration, VLGC: Very Large Gas Carrier

Courtesy: Energy News Monitor | Volume XIV; Issue 11

SOLAR ENERGY BINDS INDIA AND CHINA

Monthly Non-Fossil Fuels News Commentary: July – August 2017

India

As reports of the border stand-off between India and China continue to hog headlines, one of the concerns raised is whether this would have a bearing on the solar sector in India because local project developers are dependent on solar cells and modules imported from China. Of the $2.34 billion worth of solar equipment brought into India in 2015-16, a staggering $1.96 billion (83.61 percent) worth of solar cells and modules were produced in China. India imported solar and photovoltaic cells worth about $826 million from China during the April-September period of 2016-17. Hero Future Energies believes that irrespective of the tensions, imports had to be impacted since the Indian government is already working on an anti-dumping duty petition filed by domestic manufacturers. MNRE said that the capacity of solar modules in India is 8,000 MW, while for cells it is 1,500 MW and this is not sufficient to achieve the government’s aims. Experts said that without cheap imported solar panels from China many of the projects that had bid down tariff for solar power in recent auctions would not be viable. India has already installed more solar capacity in the first six months of 2017 than in the entire 2016, according to a report by Mercom Capital Group, which tracks the Indian solar sector. Around 4,800 MW has already been commissioned in calendar year 2017, against 4,038 MW in 2016. The report expected an addition of 10,500 MW through the year, which will be another record, almost twice the 5,525 MW added in financial year 2016-17. But 2018 is likely to be a different story because of confusion over applicability of the GST on solar products, the report warned. The MNRE is urging the finance ministry to stick to the earlier 5% for all solar equipment, but a decision has yet to be announced. The sharp fall in solar tariffs at the last auctions held in May this year has also become a dampener, according to the report.

The Haryana government has waived intra-state wheeling charges, cross subsidy charges, transmission and distribution charges on the electricity generated from solar power plants in the state. Any investor, who installs a solar power plant at any place in the state, can sell this power to any private entity within the state at mutually agreed tariff without paying these charges. The solar power produced may be purchased by the Haryana Power Purchase Centre on the tariff finalized by inviting the tenders on competitive bids. The MNRE had raised the solar renewable purchase obligation targets for the obligated entities including distribution companies to 8 percent from the current level of 3 percent of power consumption.

The flag bearer of headline renewable energy growth, Madhya Pradesh, in a latest amendment has suggested taking away the “must-run” status of renewable and co-generation power projects. In the latest order by the MPERC, it has asked the “the generation from co-generation and renewable sources of energy to be subject to ‘scheduling’ and ‘merit order dispatch principles’ as decided by the commission from time to time.” The order pertains to the amendment in the MPERC (Cogeneration and Generation of Electricity from Renewable Sources of Energy) (Revision-I) Regulations, 2010. Sector and legal experts said this would harm the renewable energy projects, as the state would now have the freedom to back down from these whenever it wished to. Renewable power enjoys a “must-run” status across the country to ensure its integration in the grid and better returns to the developers.  Legal experts said no Indian state has till yet removed the must-run status of renewable energy and this would set wrong precedent. Observers were of the opinion that solar power should compete with other sources of power to earn the title of having achieved cost parity (not just grid parity) with other sources of power.

Solar power tariff in the country has fallen by 80 percent since 2010. The maximum tariff for solar power was seen in December 2010 when 150 MW was sold at ₹ 12.76/kWh under the Jawaharlal Nehru Solar Mission. Since then, the tariff has fallen steadily with the lowest tariff of ₹ 2.44/kWh for 500 MW in Rajasthan. The solar power tariff has been falling only when the states or agencies go through the bid mode. Tamil Nadu which followed the power purchase agreement does not figure in the list of states that took advantage of falling solar power tariff until 2015. Solar power tariff across the country started falling from ₹ 6.88/kWh to ₹ 4.63/kWh in nine months of 2015. Compared to several sunshine countries, India’s solar power tariff is still high.

A plea seeking a ban on the manufacture, use and import of solar panels containing antimony, a heavy metal, has prompted the NGT to seek the reply from the Centre and the pollution control board. A bench headed by NGT Chairperson issued notice to the MNRE, the Ministry of Commerce and the CPCB and sought their response. Solar panels are used to convert sunlight into electricity. The plea said with increasing use of solar modules and panels under the National Solar Mission, the scientific disposal of antimony posed several problems for the environment. The petition claimed that antimony was at present being dumped in landfill sites along the solar panels which were crushed after use. It sought a direction to the CPCB to amend the E-Waste Rules, 2016 and bring antimony within scope of Rules 16 pertaining to hazardous substances. The plea said that the CPCB should pass a direction to permit import of only those solar modules that do not contain antimony. It also sought random sampling of the solar modules in the collaboration of an IIT to verify the existence of hazardous substances, including antimony. The petition asked for a direction to the respondents and the environment monitoring agencies to immediately undertake remedial measures to limit the damage caused to the environment by submitting an action plan showing how to deal with future disposal of solar and solar panels.

NTPC said ₹ 3-3.20/kWh tariff for solar power may be the new normal and can be achieved without the support of “cheap funds or cheap panels”, which have been a concern for the industry. Solar and wind energy units generate less than 10 percent of the global electricity output and have remained on the side-lines historically as these projects were taken up to fulfill a social responsibility towards clean energy. But these green energy sources have seen a decline in prices making them comparable to conventional energy and causing a disruption in the power sector. India too has rapidly scaled up its renewable energy capacity, led by solar power in the last few years. But the steep fall in tariff has triggered concerns over project viability. NTPC has commissioned 847 MW or renewable energy capacity, has 73 MW under execution and another 1,275 MW under tendering process. The company’s target is to develop 10 GW of renewable energy as a commitment to the government. It is also developing another 15 GW under National Solar Mission (Phase 2).

In the next two years, solar power will be cheaper than the electricity grid in the residential sector, says solar energy provider SunSource Energy which successfully implemented the first two phases of a 100 MW solar project in South East Asia. Stating that while the solar energy in India has already reached ‘grid parity’ in commercial, industrial and utility sectors, soon this would be achieved in residential sector as well. At present, India has installed capacity of 327 GW (One GW is equal to 1000 MW), of which about 40 GW is Solar (12 GW) and Wind energy (27 GW) combined. About 70 percent of power comes from coal-based power plants and the remaining from hydro and other sources like biogas. The solar company has designed and built over 100 solar projects across 18 states in India, with a focus on decentralised power projects. It is currently involved in nearly over 150 MW of solar projects in India and overseas.

Cautioning that India’s performance in renewable energy areas like solar, small hydro, biogas is not so encouraging, a parliamentary standing committee said that the government should not act as bystander and adopt more proactive approach to arrange finances for solar power projects. It also said that 40,000 MW target of grid connected rooftop solar by 2022 is “unrealistic” and it is “highly unlikely that this target will be achieved”. It suggested that government should give it a “serious relook” at it otherwise it will derail the National Solar Mission target of 100,000 MW by 2022. It also pressed upon government to “urgently formulate” a dedicated programme to establish India as a solar manufacturing hub. Prior to Paris Climate Summit in December 2015, the NDA government announced an ambitious renewable power programme of 175,000 MW which includes 100,000 MW solar power and 60,000 MW wind power. At present, India has a total of 58,303.35 MW of renewable power of which 32,508.17 MW comes from wind power alone, while solar energy accounts for 13,114.85 MW.

The infrastructure fund of multi-asset manager IDFC Alternatives is set to make its biggest acquisition till date by taking over the entire 200 MW of First Solar’s operational portfolio of solar power projects in India for around $300 million as consolidation picks up momentum in the renewable energy sector. These projects — seven in all — are located in Telangana and Andhra Pradesh. Arizona-headquartered First Solar is an American PV manufacturer of rigid thin film modules, or solar panels, and a provider of utility-scale PV power plants and supporting services like finance, construction, maintenance and end-of-life panel recycling. In India, it has supplied over 1 GW worth of panels while globally its supplies are worth over 17 GWs, according to the company. The First Solar acquisition will be carried out by a platform company wholly owned by IDFC’s infrastructure fund called Vector Green. Vector Green in the past has acquired a 24 MW wind asset from Naveen Jindal’s Jindal Steel and Power and another 40 MW solar project from Punj Lloyd. This would be its most ambitious takeover. The next 12 months will be interesting for wind and solar sectors from a regulatory and competitive intensity standpoint, IDFC said.

The National Association of Street Vendors of India estimates that there are around 30,000 street vendors in Bengaluru. Small businesses like these face innumerable challenges, given their make-shift existence. The Selco Foundation has been finding sustainable solutions for marginalised communities. It called for entries to build sustainable, cost-effective energy kiosks that can be used by street vendors and marginalised immigrant communities for their daily energy needs through the competition Design + Build 2017 in May. The pilot, to be built at a cost of ₹ 600,000, is to be set up at the Clarence School bus stop in Richards Town. Using solar power, it would be able to charge 60 lights, which would be rented out at ₹ 10 per light to vendors and community members on the street. Selco Foundation said the cost of power from these kiosks would be cheaper than kerosene lamps. In the long term, these kiosks could help in rural areas, for migrant or low-income communities and in disaster and relief situations.

A new report by HEAL, an European environmental non-profit has assessed the spending of seven economically powerful countries on fossil fuel subsidies and health costs associated with fossil fuel subsidies. India, according to the report spent as much as $16.9 billion on oil, gas and coal subsidies in 2013 and 2014 but health costs to meet the burden of air pollution linked diseases is eight times the fossil fuel subsidies at 140.7 billion dollars. The report ‘Hidden Price Tags’, highlights that India can provide 375 million households with solar lamps or train nearly 32,000 extra doctors for rural areas with the fossil fuel subsidy spending of $16.9 billion annually. This is assessed considering that each solar lamp costs about $22.5, and AIIMS recent estimates suggest a cost of  ₹ 17 million to educate a doctor. The subsidy amount could even fund 24% of the total money needed to implement health care coverage for all Indians, the report suggests. On India’s spending on fossil fuel subsidies, researchers from the PHFI who drafted the India chapter noted that two-thirds of electricity in India continues to be generated from coal, one of the biggest contributors of air pollution. LPG and Kerosene are also subsidized. The report said not all fossil fuels are bad, in fact LPG has significant health benefits when its used to substitute biomass or coal as cooking fuel.

The UP government issued notice to six private companies, including Adani Green Energy, for delay in setting up solar power plants in UP. The decision was taken after the companies did not set up solar power plants, despite entering into an agreement for it, two years ago. UPPCL issued the ‘Procure Preliminary Default’ notice to six companies, namely Adani Green Energy Ltd, Pinnacle Air Pvt Ltd, Awadh Rubber Prop, Madras Ilastomar Ltd, Sudhakar Infratech Private Ltd and Shastradhara Energy Private Ltd, seeking cancellation of their agreement with the New Energy Development Authority. UPPCL said the state government got into an agreement with 15 companies in 2015 under the solar power policy of 2013. Of these, nine installed solar power plants with a total capacity of 135 MW but six companies did not honour the agreement to install power plants with an aggregate capacity of 80 MW each. As per the agreement, the units were to supply solar power at the cost of ₹ 7.02 to ₹ 8.60/kWh. According to UPPCL, cost of solar panels reduced over time. UPPCL said cost of solar power fell to ₹ 2.44/kWh because of reduction in prices of solar panels. Under such circumstances, the companies may not be allowed to set up power plants as per the previous arrangement, UPPCL said. Union ministry of new energy, through its letter, had asked the state government not to extend the deadline for installation of solar power projects.

Bengal’s Department of Power and Non-Conventional Energy Sources has proposed providing access to solar power to the small islands in the state, with 30 to 50 families on each, in the Sundarbans Delta and other rivers. There are two major hindrances to providing power to these small islands from the conventional electrical grid. Firstly, it is a costly proposition, and secondly, the electrical poles are often uprooted due to floods and storms, which these islands in the Sundarbans are prone to. Solar panels would be fitted on the roofs of homes, and these would provide captive power for use by the household members. Initially, a private agency, to be chosen through a bidding process, is going to be given the responsibility of maintenance, which would then be passed on to the gram panchayats.

The MNRE has clarified that a guideline for procurement of renewable power through competitive bidding would be notified shortly by the Centre.  Till then, projects may be set up under existing provisions of the Electricity Act, 2003 under section 62 wherein the State Regulatory Commission is to be approached for fixation of tariff, the government said. HAREDA said that after the notification, any project developer may set up a project for generation of renewable energy as per the bidding guideline if it qualifies for the same. HAREDA said that in the renewable energy policy of the Haryana government, there is a provision for setting up of renewable power projects by independent power producers on the site identified by them. For this, they have to submit their proposal along with DPR to HAREDA. After approval of the DPR, they have to file a petition before the HERC for fixation of tariff for their projects for sale of power to the state grid.

With the steep fall in solar tariffs in the last two years, the MNRE has written to all states to ensure that solar developers do not get “undue benefits” from the development by insisting that solar projects meet the deadlines initially set for them without any extensions. The fall is largely due to the lowering of prices of solar cells and modules in the global market, especially in China, which has seen considerable overproduction. The MNRE is concerned that developers who signed PPAs at fairly high tariffs while solar equipment prices were also high, could earn a windfall over the next 25 years – most solar PPAs are for 25 years – if they delayed buying their requirements and did so after prices had dropped. Low solar power tariffs discovered in recent rounds of bidding for solar power projects has raised questions on the viability of projects.

NHPC Ltd has shut down its hydel power plant at Ramdi in Darjeeling hills after a mob of over 600 people began agitation outside the plant site. NHPC will resume power generation at Ramdi plant once it gets assurance of security of the unit. NHPC has another unit Teesta Low dam IV of 160 MW in Darjeeling hills.

A total of 41 under-construction hydro electric projects (above 25 MW) with a combined capacity of 11,792.5 MW are running behind schedule, Parliament was informed. The projects are lagging on account of natural calamities, delays in forest clearances and land acquisition and law and order problems. NHPC is scheduled to generate 4458.69 million units additional power from two of its under- construction projects – Parbati-II (800 MW) in Himachal Pradesh and Kishanganga hydro electric project (330 MW) in Jammu & Kashmir. While Parbati-II is scheduled to be commissioned in October 2018, Kishanganga is scheduled to begin in January 2018.

Wind energy companies have moved the Madras High Court against the Tamil Nadu electricity distribution company’s move to auction wind energy projects with a new base price, and the sector regulator’s decision to allow the auction. IWEA has moved the high court, challenging a TNERC order to allow Tamil Nadu Generation and Distribution Corp Ltd hold a wind auction for 500 MW with the base price set at ₹ 3.46/kWh, a record low tariff found in the first and only wind auction in the country held in February. IWEA in its petition called TNERC’s order issued on June 2 “arbitrary, illegal, unjust and deserving to be quashed”. It argued that since an earlier tariff order of the regulator was valid till April 1, 2018, any fresh tariff related order could only be passed after this period had expired. TNERC had passed a comprehensive tariff order on wind energy, applicable for two years starting April 1, 2016, setting the wind power tariff at ₹ 4.16/kWh. Wind energy tariffs so far had been set by state regulators and mostly varied between ₹ 4/kWh and ₹ 6/kWh.  The first wind auction was held in February by Solar Energy Corp of India Ltd. It saw wind energy tariffs fall sharply to ₹ 3.46/kWh. The petition also said that the final guidelines for states choosing to hold wind auctions had not yet been issued by the Centre, though draft guidelines had been circulated.

India and Russia have signed contracts for priority design works and supply of main equipment for units 5 and 6 of the KNPP in Tamil Nadu, two months after the main framework agreement for these units were signed. Three main contracts were signed between NPCIL and Russia’s JSC Atomstroyexport for priority design works, working design and supply of the main equipment for stage III of KNPP, the Russian company said. JSC Atomstroyexport is a key foreign trade engineering company of State Corporation “Rosatom” for construction of nuclear power facilities abroad. After overcoming initial hurdles, India and Russia signed the GFA and credit protocol for Units 5 and 6 of the KNPP on June 1. The KNPP was the outcome of an inter-governmental agreement between the erstwhile Soviet Union and India in 1988. It is the single largest nuclear power station in India. The power station was envisaged to have six units with total capacity to generate 6,000 MW of electricity (1,000 MW each).

A French firm, which is to build six atomic reactors at Jaitapur, has submitted a fresh plan to the NPCIL proposing to share a larger role in the engineering aspect of the project, the company said. The firm, EDF, and the NPCIL have also resolved to sign the GFA for the JNPP by the end of the year. The EDF is to build six reactors, each with a capacity of 1650 MW each. When operational, the proposed plant, some 500 km south of Mumbai, will be the largest nuclear power generation park in the country. A construction of a nuclear plant is usually discussed in terms of the EPC. The EDF has proposed to take care of the engineering part and a large chunk of the procurement of equipment which have to be sourced from abroad. This position has been different from what Areva, which has been taken over by EDF, had proposed when the negotiations had initially begun. However, the EDF insists that the NPCIL should take care of the construction part as it has an experience of building the Kudankulam Nuclear Power Plant.

Rest of the World

China’s solar industry is expected to produce 25 percent more panels in 2017 than last year, supported by domestic sales and demand from the US and emerging markets. China was expected to produce solar panels with a combined capacity of 60 GW this year. China produced panels with capacity of 48 GW in 2016. Despite growing global demand, China’s solar industry faced challenges ranging from possible tariffs abroad to inadequate grid connections at home. The US has told the World Trade Organization it was considering putting emergency “safeguard” tariffs on imported solar cells, a move aimed at shielding its industry from a damaging, unforeseen surge in imports. In China, solar generation has been hindered by wastage or curtailment, in which inadequate grid connections mean not all capacity is utilized. Environment group Greenpeace said solar curtailment rates across China rose 50 percent in 2015 and 2016, with more than 30 percent of available power in north-western province Gansu and Xinjiang failing to reach the grid. China had a total of 101.82 GW installed solar capacity by June, after adding 24.4 GW in the first six months of 2017, the industry association said. It will soon reach 110 GW, the target Beijing had aimed to achieved by 2020.

Top oil exporter Saudi Arabia has asked companies to qualify to bid for its first utility-scale wind power project at Dumat al-Jandal. Requests to qualify for the 400 MW wind project in the north of the kingdom will close on August 10, and proposals will be received from August 29. Bidding closes in January next year, the ministry’s REPDO said. The ministry had earlier said the Sakaka 300 MW solar PV plant and a 400 MW wind project in Midyan were part of the first round of projects. Saudi Arabia aims to generate 9.5 GW of electricity from renewable energy annually by 2023 involving 60 projects. The renewables initiative involves investment estimated between $30 billion and $50 billion. The ministry has said the first round will be to generate 700 MW of renewable energy followed by 1.02 GW in the second round which will be split into 620 MW solar and 400 MW wind whose bidding could happen between the fourth quarter of this year and first quarter of 2018.

Scientists have designed new ‘smart’ solar glasses incorporated with coloured, semi-transparent organic solar cells that can generate electric power enough to operate devices such as hearing aids or step counters. Organic solar cells are flexible, transparent, and light-weight – and can be manufactured in arbitrary shapes or colours, researchers from Karlsruher Institut fur Technologie (KIT) in Germany said. They are suitable for a variety of applications that cannot be realised with conventional silicon solar cells. Researchers designed sunglasses with coloured, semitransparent solar cells applied onto lenses that supply a microprocessor and two displays with electric power. This paves the way for other future applications such as the integration of organic solar cells into windows or overhead glazing, researchers said.

Germany connected 626 MW of newly built offshore wind capacity to power grids in the first six months of this year and expects to see total installations of 900 MW in the full year, five industry groups, engineering body VDMA, wind energy group BWE, wind energy agency wab, the Offshore Windenergie Foundation and Group for Offshore Wind, said. The installed total is now 4,729 MW and if 900 MW were achieved, it would exceed the 818 MW added in 2016. The rate of expansion could mean the industry will beat government targets of 6,500 MW for 2020, they said. The wind power industry is moving away from an era of costly subsidies and is trying to become more commercially viable and to bring down costs for consumers. The industry groups said that latest bids by companies to build and run turbines at zero subsidy costs in the next decade offered encouragement and reason to expand. Germany’s network regulator in April approved 1,490 MW of offshore wind capacity on the German North Sea to be built in the middle of the next decade at costs well below expectations to utilities EnBW and Denmark’s DONG Energy.

MHI has agreed to acquire a 19.5% stake for an undisclosed sum in a new company that will be formed through the reorganization of Areva Group. In November 2016, EDF had agreed to buy Areva’s nuclear reactors business, a transaction which had been approved by the European Commission recently. According to MHI, the stake acquisition will expand its ties with EDF. It is also expected to bolster the relationship between Japan and France in the nuclear power sector based on the close ties of cooperation of MHI with the Areva Group and French utility EDF. MHI said that it will continue to work closely with EDF and the Areva Group for the completion of the transaction. It said that all processes regarding the same are scheduled to be done with by the year end.

State agencies have been ordered to review the economic viability of Dominion Energy Inc’s Millstone nuclear power plant, which critics want shut down in the face of cheaper energy sources. Since 2013, six reactors, including Dominion’s Kewaunee in Wisconsin, have shut for economic reasons. Another six are expected to shut over the next five years. Connecticut is among several states exploring rules to keep reactors in service to preserve carbon-free energy, jobs, taxes and a more diverse power pool. Other states looking at similar rules are Ohio, Pennsylvania and New Jersey. New York and Illinois adopted rules to subsidize some of their reactors in 2016. Dominion Energy Inc said it would keep fighting to get the Connecticut legislature to include power from the company’s Millstone nuclear plant included in a state energy procurement plan. But NRG Energy Inc vowed to fight Dominion’s proposal, calling it “a cynical scheme that should not be rewarded.” The state has solicited power from renewable sources of generation to support environmental programs. Dominion has said including nuclear power in this program will help cut the state’s electricity costs, which are among the highest in the country. Millstone is among several nuclear plants in the United States Northeast and Midwest that could close before their licenses expire, as low wholesale power prices have squeezed profits. The ISO said Dominion had already committed to generate power through May 2021, but noted it could retire the reactors so long as the company provides energy from another source. Connecticut is one of several states exploring ways to keep reactors in service to preserve carbon-free energy, jobs, taxes and a more diverse power pool. In 2016, New York and Illinois adopted rules to subsidize some reactors that were in danger of closing due to generators run on cheap natural gas. Ohio, Pennsylvania and New Jersey have also considered proposals to protect their reactors.

France will define a clear roadmap to fulfill its pledge to cut the share of nuclear power in its electricity generation to 50 percent by 2025. A 2015 law requires France to reduce in eight years the share of atomic power generation to 50 percent from over 75 percent currently, and include more renewable wind and solar generation. For France to meet that target, it might have to shut down up to 17 of its 58 nuclear reactors operated by state-controlled utility EDF. Newly elected French President has maintained the target of cutting French nuclear production by 2025. Since the 2015 law was passed, little had been done and there was no clear strategy on how France would meet the 50 percent target. The closure of the nuclear plants is a hot-button issue in France with trade unions and some political parties saying the plan would cripple the French nuclear sector.

Brazil is planning to lower the estimated capacity of several older hydroelectric dams before they are privatized by state-controlled power holding company Eletrobras. The revisions will reduce the amount of energy that the dams can legally offer to the market – part of an effort to create a more robust and predictable power grid as the government seeks more private investment for the sector. Earlier this year, a government study suggested that hydroelectric capacity estimates could be lowered by about 845 MW with nearly two-thirds of that coming from the massive Itaipu dam shared with neighbouring Paraguay. The proposed capacity revisions would not affect the hydro dams’ obligations, but would reduce their potential to generate revenue. By making them before Eletrobras puts the operations up for sale, the government is aiming to reduce uncertainty and bring more bidders to the table for the upcoming privatizations.

Democratic Republic of Congo has decided to more than double the size of its planned Inga 3 hydroelectric plant to make it more economical, after the $14 billion project was hit by financing problems. Inga 3 is part of a $50 billion-$80 billion project to expand hydroelectric dams along the Congo River, but the project has repeatedly been delayed by red tape and disagreements between Congo and its partners on the project. The plant would be built to produce between 10,000 and 12,000 MW of power, more than double the originally planned capacity of 4,800 MW.

GST: Goods and Services Tax, MW: Megawatt, GW: Gigawatt, MNRE: Ministry of New and Renewable Energy, MPERC: Madhya Pradesh Electricity Regulatory Commission, kWh: kilowatt hour, NGT: National Green Tribunal, CPCB: Central Pollution Control Board, PV: photovoltaic, AIIMS: All India Institute of Medical Science, PHFI: Public Health Foundation of India, LPG: Liquefied Petroleum Gas, UPPCL: Uttar Pradesh Power Corp Ltd, HAREDA: Haryana Renewable Energy Development Agency, HERC: Haryana Electricity Regulatory Commission, PPAs: Power Purchase Agreements, IWEA: Indian Wind Energy Association, TNERC: Tamil Nadu Electricity Regulatory Commission, KNPP: Kudankulam Nuclear Power Plant, NPCIL: Nuclear Power Plant, Nuclear Power Corp of India Ltd, GFA: General Framework Agreement, HEAL: Health and Environment Alliance, EDF: Electricite de France, JNPP: Jaitapur Nuclear Power Plant, REPDO: Renewable Energy Project Development Office, MHI: Mitsubishi Heavy Industries, US: United States

Courtesy: Energy News Monitor | Volume XIV; Issue 10

3rd Green Energy Summit (Summary of Proceedings)

K K Roy Chowdhury, Energy & Environment Expert, Delhi

The 3rd Green Energy Summit with the Theme, “Renewable Energy: A Key Enabler for Sustainable Growth” was organised by Indian Chamber of Commerce (ICC) in association with the Ministry of New and Renewable Energy (MNRE), Government of India in New Delhi on 21st March 2015. ICF International was the Knowledge Partner in the event. The day-long programme was inaugurated by Mr Piyush Goel, Hon’ble Minister of State (Independent Charge), Ministry of Power, Coal & Renewable Energy, Government of India, and had two plenary Sessions followed by a closing Session. More than 100 energy professionals from the industry, equipment manufacturers, operators, financial institutions, government agencies, consultants, NGOs and the media participated in the highly interactive event. The key proceedings are presented below.

Inaugural Session

Dr Rajeev Singh, Director General, ICC, in his welcome address, noted that Green Power and Renewable Energy (RE) have got a fresh thrust with the new Government at the Centre that would enhance the capacity of the sector, and would be good for India and renewable energy companies. Dwelling upon some facts and figures, that, 1.3 billion of global population including 400 million in India are still without electricity, and by 2040, 20 percent of the global population will be residing in the Asian Region with 70 percent of that belonging to the working age group, Dr Singh observed that this threw a dual challenge to meet their energy needs and at the same time to consider the environment. Renewable energy (RE) constitutes 20 percent globally, and in India, the share was 12-13 percent, which implied that RE had definitely grown in India and so no longer a marginal source he mentioned.

Mr Anil Razdan, former Power Secretary, Government of India and Chairman, ICC National Expert Committee on Energy, delivered the keynote and theme Address as the Summit Chairman. In appreciation of the assembly in quest for a route to sustainability, he drew attention to ICC’s new mission to explore solar and wind now following hydro. Stressing on the need to rediscover ourselves for sustainability, since we had to live the way nature wanted us to, Mr Razdan pointed towards the dilemma in tracking the nature! Calling for productivity and efficiency to move in this path to rediscover nature, he stressed on the need for identification of technologies from this perspective, for which India had huge opportunity as it was blessed with nature’s bliss, namely, long coastline, large insolation, less dark spaces, etc. A commercial sense had to be derived from this opportunity he said. The challenge is to provide electricity to the consumers at the right rate he observed! To achieve this, he stressed on the need for developing batteries for storage of energy, indigenously, in a manner similar to the one adopted in hydro-power for water (energy) storage, that would also work towards judicious use of peoples’ money.

Mr Nitin Zamre, managing Director, ICF International, spoke on transforming the current energy landscapes in the country with the power of renewables. Underlining the need to leap-frog into modern energy sources he sought for ways and means to move in this direction. He gave an overview of the Indian Power Sector with highlights on the facts and figures published by Central Electricity Authority and MNRE in this regard and pointed out that targets had been revised, 5 folds for solar to 1,00,000 MW by 2022, and for wind to 60,000 MW by 2022, etc. He also mentioned the proposed development plans for solar/ green cities, and informed the participants that five cities had been accorded approval for implementation of renewable energy, with INR 100 crores per city allocated for the purpose. He also touched upon the aspect of grid connected power and the intricacies in its evolution. Summing up his presentation, Mr Zamre mentioned that there lay huge opportunity for significant scale-up in renewable energy in India.

In his address on Integration of Renewables into the Grid: Importance of Green Energy Corridors to boost renewable capacity, Mr S K Soonee, CEO, POSOCO, stressed upon the importance of Distribution System Operators. He said that we had to consider our time diversity, seasonal diversity, and climate diversity. He said that we had to adjust to falling heat rate as well as the load curve/ load factor. He pointed out that connectivity and standards were important for renewable to reach critical mass since renewable energy was a low-voltage phenomenon, Mr Soonee outlined.

Dr Ashwini Kumar, Managing Director, Solar Energy Corporation of India (SECI), talked about capacity addition targets for the next 5 years. On the question of solar scale-up potential, land was one of the major issues, he observed. Land area requirement is more for solar power, at 5 acres/MW he said. Therefore, sufficient capital needs and funding requirements are to be addressed too, he said. Given the fact that waste land had to be utilised for solar power, considering even 5 percent of the waste land available in the country, our purpose will be more than served as it would give more than 1000 GW against our target of 100 GW, Dr Kumar stated. He also talked of tariff consolidation with cheaper interest rate and long-term loans. He talked of the initiative taken for the Solar Park Scheme to support 20,000 MW capacity. NTPC had also undertaken grid based capacity for 3000 MW, he informed. He also touched upon the MNRE scheme for development of a solar park with targets of 500 MW and above to reach 20,000 MW, and in this direction, he said that Andhra Pradesh had come forward for 2000 MW park and Karnataka for 2000 MW at a single site.

A special address was delivered by Dr Ajay Mathur, Director General, Bureau of Energy Efficiency, Government of India. He highlighted on the success of wind energy in India. Banks are lending finance, with 95 percent of technology being available indigenously in the wind sector he said. Good demonstration of wind power and its performance had also prompted the state utilities to purchase wind power at the rate of Rs 2.25 per unit without escalation to facilitate wind power he said. Business models, interconnectivity and capacity are the three issues that need to be focused upon, Dr Mathur said.

Mr Piyush Goel, Hon’ble Minister of State (Independent Charge), Ministry of Power, Coal & New & Renewable Energy, Government of India, was the Chief Guest on the occasion. In his address, Mr Goel assured fast-track growth in the RE sector that would keep up with the ongoing tempo in the new Government at the Centre. He stressed upon the need for boosting investment to facilitate sale of power, given the fact that the country had surplus power. In order to facilitate growth of RE on a fast-track mode, he drew attention to the following five essential issues:

  • credibility of the power-purchase agreement for reducing risk
  • life of the equipment and cost to keep technology in focus
  • Intra- and inter-state aspects
  • RE off-grid plants for rural electrification
  • Net metering for economic viability

Further, Mr Goel referred to the success in the wind sector and said that domestic manufacturing needs to be enhanced in the case of solar as well. ‘While targeting to realise 175 GW of solar power by 2022’, he said, ‘we have to do it without subsidy’. He called for a white paper with details to address the five issues flagged by him that would also reduce coal-based power since coal had the largest environmental costs.  Drawing attention to the amendments in the Electricity Act 2003, he invited people to raise issues before the Standing Committee and drive consumer choice towards best supplier of electricity. ‘We cannot ignore the developmental imperatives of India keeping in mind a good government has to do good economics as well’, he observed.

The Minister also released ICC Knowledge Report on Green Power.

The summit also hosted two plenary Sessions, one on the Theme of Wind Power: Key to Future Sustainability, and the other on the Theme of 100 GW Solar Power by 2019.

The closing session revolved around the theme of ‘India’s perspective for unconventional Energy sources & their deployment.

Views are those of the author                    

Author can be contacted at roychowdhury1@gmail.com

Courtesy: Energy News Monitor | Volume XI; Issue 42

POWER SECTOR AWAITS REFORM AND REVIVAL

Monthly Power News Commentary: July 2017

India

Financial losses of discoms of states which have joined the UDAY have fallen by 21.5% in the year to ₹ 402.95 billion in FY17. Discoms of Rajasthan, which saved about ₹ 47 billion through lower interest costs, saw losses falling by 54% to ₹ 52.08 billion. Decrease in losses corresponds with significant savings made by the discoms through lower interest costs, as per the design of the UDAY scheme. Governments of 16 states have taken over around ₹ 2.3 trillion debt of their discoms as per the terms of UDAY. This helped in lowering interest rates to 7-8.5% from around 11-12%, resulting in discoms saving ₹ 119.89 billion till December 2016. Some discoms of other big states, traditionally burdened with huge losses, also saw significant improvements in their financial performances. Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Maharashtra witnessed drop in losses by 14%, 16%, 35% and 8% to ₹ 6,619 billion, ₹ 48.13 billion, ₹ 37.83 billion and ₹ 25.68 billion, respectively. However, financial losses of discoms of Punjab, Jharkhand and Bihar have increased by 20%, 72% and 53% to ₹ 2,386 billion, ₹ 2,001 billion and ₹16.41 billion, respectively. The performances of several state discoms have seen an improvement since they signed up for UDAY. The gap between the discoms’ average cost of supply and average revenue realised narrowed by ₹ 0.07/kWh in FY17 to ₹ 0.47/kWh. The average aggregate technical and commercial losses for all UDAY states has come down by about four percentage points to 20.2% as well. Research firm ICRA recently said UDAY has improved the liquidity profile of the discoms to some extent and expects discoms book losses on a national level to decline from ₹ 600 billion in FY16 to ₹ 350 billion in FY18. However, the firm also estimated that the overall subsidy dependence of the state-owned power discoms for FY18 would increase annually by about 7-8% to around ₹810 billion.

The UDAY scheme for power distribution reforms is reported to be bearing fruits with major improvement witnessed in both financial and operational performance of debt-laden discoms, Credit rating agency Ind-Ra has said. It said a reduction in interest cost has also benefitted discoms’ finances which is estimated to have freed up ₹ 220 billion capital of the banking sector. At the end of March 2017, 26 states and one union territory have joined UDAY. Nagaland, Odisha and West Bengal have not joined the scheme. As the UDAY scheme merely transfers debt from the balance sheet of discoms to that of the State budgets it is natural that debt of discoms has fallen.

The power ministry has asked states to slash electricity losses due to theft and technical reasons to below 10% within six months, an ambitious target given that some towns in Uttar Pradesh, Jharkhand and Bihar lose up to 90% of power. The target was put before the states in a review, planning and monitoring meeting with power secretaries of states. About 4,041 towns are being targeted under the proposal. Cities such as Ahmedabad and Visakhapatnam would find it easier to meet the target since they lose close to 10% power due to theft and technical reasons, but the move is being resisted by states such as Jharkhand, Uttar Pradesh and Bihar where pilferage and technical problems are a huge challenge. The power ministry said that the national aggregate technical and commercial losses in states reduced to 20% in 2016-17 from 21% in FY16, 25% in FY15, and 23% in FY14.  It is not clear if the Centre can order the States to reduce power theft because constitutionally the power sector is with the States.

The government is looking to take the assistance of SBI Capital Markets Ltd in its effort to tackle the issue of stressed assets in the power sector. The investment-banking arm of State Bank of India, which will likely get the mandate from PFC, will help devise a strategy for the resolution of stalled power projects. Stressed assets in the power sector account for around ₹ 4 trillion of banks’ ₹ 10 trillion of bad loans. Some of the issues faced by these projects include paucity of funds, lack of a power purchase agreement, and absence of fuel security. JM Financial Research wrote that its 2016 study of stressed power assets had concluded that of the total 28 GW generating capacity in question, assets accounting for 14 GW were at high risk. Stressed assets in the power generation sector, where developers have not wilfully defaulted on loans, are likely to be taken over by lenders under a resolution plan being worked out. The strategy being explored involves banks taking over the stressed projects and bringing in state-owned or private entities to manage plant operations efficiently till a buyer is found. REC and PFC are among the largest power sector lenders in India.

To meet the twin goals of curbing wasteful electricity consumption and limiting power subsidies to the really needy, the government is looking at replicating the DBT scheme in the sector. DBT-Power, if implemented efficiently, could practically solve sticky issues in the power sector as it will help slash the losses of the power distribution companies. The draft national energy policy, published by NITI Aayog, had noted that adoption of DBT would protect the vulnerable electricity customer from rise in electricity prices when fuel costs go up. Once DBT-Power is introduced, state governments can directly subsidise customers. This will also engender salutary behavioural changes in consumption. Even the subsidised power users will be paying tariffs calculated on the basis of actual cost of electricity generation and transmission and distribution while receiving the subsidy amounts in their bank accounts. DBT is also expected to gradually reduce cross-subsidisation, helping to moderate industrial power rates — another issue the government is trying to address. Industrial customers, to compensate for low agricultural power prices, pay hefty tariffs of more than ₹ 7.40/kWh.

PGCIL is working on what would be the largest project for monitoring and controlling of electricity supply across the country. Called ‘Unified Real Time Dynamic State Measurement (URTDSM)’, the central transmission utility would install ‘Phasor Measurement Units (PMUs)’ at all substations and generating stations. This would also form the backbone for efforts underway to integrate the large amount of renewable energy envisaged. The plan is to install PMUs at close to 1,300 locations on the national grid in phase-I; 1,000 have been installed. In the second phase, another 500 PMUs would be installed along with a network of Optical Ground Wire, for facilitating communication services in the power network, PGCIL said. The PMU network will facilitate monitoring of grid events in real time, such as power flow, voltage, backing down, demand & supply synchronisation, etc. This would improve grid reliability, reduce the probability of blackouts and minimise the impact of grid curtailment. It would also pave the way for remote communication and management of power supply. PGCIL is already monitoring the grid at a regional level through a National Transmission Asset Management Centre, which is monitoring 192 locations through nine control centres. Headquartered in Manesar, Haryana, it keeps an eye on all substations of PGCIL through remote-controlled cameras and alarm systems for any snag.

Power generation in June 2017 remained flat at 97 billion units on account of lower demand from distribution companies according to a credit rating agency. Power generation in June 2017 remained flat at 97 billion units on account of lower demand from distribution companies. Continuous spell of pre-monsoon showers across northern India in June 2017 led to reduction in temperature leading to lower power demand, Credit rating agency Ind-Ra said. In June 2017, power generation from Punjab and Haryana reduced y-o-y by 39 percent and 11 percent, respectively. Lower generation led to reduction in all-India PLF for coal and lignite-based power plants by 326 basis points to 57.4 percent. PLF of NTPC Ltd owned plants registered a y-o-y decline of 462 basis points to 77.2 percent in June 2017.

13,872 un-electrified villages have been reported to be electrified up to June 30, 2017. The total number of un-electrified villages in the country stood at 18,452 as on April 1, 2015 and the government’s time-frame to electrify all the villages is May 1, 2018. The Decentralized Distributed Generation scheme, under Deen Dayal Upadhyaya Gram Jyoti Yojana, has been initiated by the government to provide access to electricity to un-electrified villages/habitations where grid connectivity is either not feasible or not cost effective including the villages located in backward, remote, inaccessible and forest areas.

UP launched free power connection scheme for the BPL card holders in the state.  The scheme would also benefit the poor people who do not have BPL cards at present. UP is giving free power connection to the same class of people.

The Delhi BJP is said to be opposing power tariff hike in Delhi. The three discoms, BYPL, BRPL and TPDDL, have been seeking hike in tarrif pointing that the last such increase of 5 percent was effected way back in July 2014. The DERC had held a public hearing on the petitions of the discoms to balance tariff, expenses and aggregate revenue requirement, but it was boycotted by the representatives of resident welfare associations. This is probably the newest copy and paste schemes of the BJP in the national capital. It is probably motivated by the fact that the AAP party was voted to power partly for the same position it took.

The CEA has started the process of identifying the actual power generation capacity of the country. This move follows the government’s own assessments that only 60 percent of the captive power plants (in terms of MW Capacity) submit data to CEA right now. The CEA said that despite being mandatory, all generating units in the country do not submit generation data to the CEA. Captive power plants of 1 MW and above capacity are also mandated to submit data regarding installed generating capacity and electricity generation to the CEA. Further, even in the case of some conventional power generating plants of Independent Power Producers, the information was only made available to CEA during the time of commissioning of the plant. In order to plug these diversions, the CEA has proposed a unique registration number for each generating unit.

The government is considering an Aadhaar-like unique identification for all the power projects in the country to know the right amount of electricity generation and consumption, electricity requirement, demand-supply patterns, and transmission system requirements. An online registry is proposed for the power producers, which include operators of all thermal, hydro, renewable and captive plants. The government is weighing taking stringent actions against non-compliance by power plant developers to ensure complete registration of power projects. The registry will also help new power plants secure regulatory clearances. About 40% of captive power plants are estimated to be unaccounted in the electricity produced in India. The power ministry said electricity generation in India is growing at a robust rate.

A new ‘Long Term Distribution Perspective Plan’ is being drafted by the ministry of power to collate details of all the power discoms across the country. Being prepared by the CEA, this the first ever draft proposal aimed at envisaging the infrastructure and investments required by the various discoms across the country on an annual basis, till 2021-22. CEA has been deliberating upon a long-term perspective plan for the generation and transmission of power supply in the country and its plan on the issue is already out. The report on the distribution sector would be finalised within 3-4 months, the power ministry said. Also, this would complement the efforts made by the states in favour of a restructuring program for discoms under the UDAY. Earlier reports on generation and transmission created a stir in the power sector after the CEA estimated an ‘end of road’ for the thermal power industry in India in the coming decade. The CEA said that the last mile infrastructure needs to grow in the states for robust power supply.

India’s power grid needs to be upgraded if the plan to sharply step up power from renewable energy is to be successful, Tim Buckley, the Energy Finance Studies Director with the US-based Institute for Energy Economics and Financial Analysis, said. Buckley, who is studying the transformation of the Indian and Chinese electricity markets, said the development and strengthening of the national electricity grid would be a critical factor in facilitating the government’s ambitious plan on renewable energy. He said the capital investment required for a transition to a smart grid was “enormous”. India’s electricity system has historically been 70 to 75 percent reliant on coal-fired power generation. Buckley said solar power generation was a near-zero marginal cost source of supply and hydro-costs varied dramatically, but were very competitive in India — particularly as a system balancing the supply for peak electricity demands.

Rest of the World

Investments in electricity surpassed those in oil and gas for the first time ever in 2016 on a spending splurge on renewable energy and power grids as the fall in crude prices led to deep cuts, the IEA said. Total energy investment fell for the second straight year by 12 percent to $1.7 trillion compared with 2015, the IEA said. Oil and gas investments plunged 26 percent to $650 billion, down by over a quarter in 2016, and electricity generation slipped 5 percent. Oil and gas investment is expected to rebound modestly by 3 percent in 2017, driven by a 53 percent upswing in US shale, and spending in Russia and the Middle East, the IEA said. The global electricity sector, however, was the largest recipient of energy investment in 2016 for the first time ever, overtaking oil, gas and coal combined, the IEA said. Electricity investment worldwide was $718 billion, lifted by higher spending in power grids which offset the fall in power generation investments.

China will extend its push to cut power distribution pricing to include transmission lines used to send electricity between regions, the NDRC said. The country has since 2014 reformed the cost of using its 32 provincial grids, which the government says has saved a total of $7.11 billion. It is now turning its attention to the power lines that connect those networks, Zhang Manying, an inspector in the pricing department of the NDRC, said. He said that pricing would also be reviewed on the myriad local power networks that operate below the provincial level. China has published two regulatory guides for provincial power pricing in the past two years.

China’s power consumption is expected to hit a fresh peak this summer, surpassing a record hit, NDRC said. China will boost its inventory of thermal coal at major ports to ensure power supply, NDRC said. Power consumption rose 6.3 percent in the first half of this year, NDRC said.

FY: Financial Year, UDAY: Ujwal Discom Assurance Yojana, discoms: distribution companies, y-o-y: year-over-year, kWh: kilowatt hour, PFC: Power Finance Corp, REC: Rural Electrification Corp,  DBT: Direct Benefit Transfer, PGCIL: Power Grid Corp of India Ltd, PLF: Plant Load Factor, BPL: Below Poverty Line, UP: Uttar Pradesh, BJP: Bharatiya Janata Party, DERC: Delhi Electricity Regulatory Commission, MW: Megawatt, GW: Gigawatt, BYPL: BSES Yamuna Power Ltd, BRPL: BSES Rajdhani Power Ltd, TPDDL: Tata Power Delhi Distribution Ltd, Ind-Ra: India Ratings and Research, AAP: Aam Aadmi Party, CEA: Central Electricity Authority, IEA: International Energy Agency, US: United States, NDRC: National Development and Reform Commission

Courtesy: Energy News Monitor | Volume XIV; Issue 9

COAL CESS TO UNDERWRITE INDIA’S MANY TRANSITIONS

Monthly Coal News Commentary: July 2017

India

Coal cess, originally meant to fund research and projects on clean energy was diverted to clean the Ganga last year.  This year it is expected to underwrite the transaction costs in shifting to GST. The government said that coal cess will contribute to the GST compensation fund, a corpus meant for compensating states for revenue losses in the wake of shifting to the new indirect tax regime. The cess on coal has been continued at ₹ 400/tonne under the GST regime. After five years, any amount left would be shared on 50 percent basis between Centre and States.

Credit rating agency Ind-Ra expects domestic coal consumption growth in India to remain tepid on account of subdued demand from thermal power plants, with an expectation of power plant capacity utilisation remaining sub-65% in the medium term. It has estimated that prices for the benchmark Newcastle coal with 5,500 calories of energy value will hover between $50/tonne and $60/tonne between 2018 and 2020. Ind-Ra feels that government’s policies on large seaborne trade and persistent substitution to renewable energy are likely to have a significant influence on coal prices. However, India’s domestic coal production is set to increase on account of government efforts to reduce imports. The higher target is partly to be met by production in coal blocks fraught with clearances issues. Freight costs and volume-based taxes make an economic case for steady demand for high-quality coal. For instance, India doubling clean energy cess to ₹ 400/tonne reduces the economic value of low-quality coal. Ind-Ra believes investment in new coal projects is likely to remain subdued globally due to gloomy long-term demand prospects. Many top global suppliers may not invest in raising output, creating a strong floor for prices. Although coking coal prices are likely to weaken in 2018 due to a production recovery in Australia and China, the average price for the full year may continue to remain high compared with that for first half of 2017 due to continued supply-side constraints and low inventory levels. However, with the restart of idle sites and new capacity ramp-ups, supply from top producer countries could improve in 2019. Ind-Ra estimates medium-term price of coking coal at about $100/tonne.

CIL has invited applications from independent power producers to take part in the auction of coal linkages under the Scheme for Harnessing and Allocating Koyala Transparently in India (Shakti). In May, the coal ministry had directed the coal producer that the miner may grant coal linkages to the power producers or IPPs having long-term power purchase agreements. The ministry said the coal linkage auction would be based on discounts on the power tariff. The discount by generating companies would be adjusted from the gross amount of bill at the time of billing, i.e., the original bill shall be raised as per the terms and conditions of the PPA and the discount would be reduced from the gross amount of the bill. The ministry had said CIL/SCCL may grant future coal linkages on auction basis for power producers/IPPs without PPAs that are either commissioned or to be commissioned. With the third tranche of linkage auction on the anvil, the coal ministry now wants to adopt a flexible mode of transportation using both the roadways and railways for easy evacuation of coal. Following the second tranche of linkage auction in which CIL offered 15 mt the miner could not conclude the fuel supply agreements since there were supply constraints from MCL, SECL and CCL. SECL has recently notified that they would not take booking over trigger level for power utilities but power utilities, if required, could place orders above trigger level if they were ready to carry coal through road mode. CIL has the obligation to supply 75% of the required coal to new power plants and 90% to old power plants, which is known as trigger level. Failing to supply this quantity CIL is liable to pay a penalty to its consumers. Non-power consumers also receive a certain percentage of their annual coal requirement. The railways generally give preference to the coal sector in supplying these wagons because of priority supplies to the power plants.

The railway ministry along with Konkan Railway is keen on identifying a solution to prevent pollution while transporting coal from MPT to steel plants in the Bellary-Hospet region of Karnataka. The coal, which arrives at MPT, is transported by trucks through Vasco town, which causes a lot of dust pollution. Coal from MPT is typically loaded onto rail wagons and sent through southwestern railways to Hospet via Londa. Along with the expansion at the port, the single-track route is being upgraded to a double-track, which has irked Vasco residents and civil society. An ambitious plan to reduce the dependence of India’s coal-fired power plants on freshwater has stalled in its starting blocks. The policy for some plants to use treated sewage water, introduced last year, is impractical and economically non-viable, according to the Greenpeace report, “Pipe Dreams”. A severe drought in 2016 forced several coal plants to shut down, causing the loss of nearly 11 billion units of power and an estimated potential revenue of $560 million between January and July 2016. The energy ministry, through a government notification in January 2016, made it mandatory for all thermal power within 50 kilometres of a sewage treatment plant to use treated wastewater in their operations. Only eight percent of all coal plants in India are able to completely meet their water needs in this way, according to the report. Some five percent of plants can partially satisfy their water needs through treated sewage, but a staggering 87 percent of India’s 200 GW coal power plants cannot follow the policy because they have no access to treated sewage water. The report also states that less than 11 percent of total treated sewage water can be used by thermal power plants. Coal-fired power plants are a major contributor to greenhouse gas emissions that lead to climate change. They use water to run turbines and for cooling, which account for 80 percent of the total consumption. Some 3.5 litres of water are needed to produce one unit of energy and, across India, coal power plants use an estimated 4.6 bcm of freshwater per year, enough to meet the basic needs of 250 million people. The states of Chhattisgarh, Odisha and Madhya Pradesh, for example, jointly produce 77 GW of coal power but can only supply enough treated sewage water to generate 1.5 GW. The report concludes that switching from freshwater to treated sewage water will not reduce the impact of coal power plants on India’s water scarcity.

CIL has decided to close down high-risk mines. CIL has graded all mines in high, moderate and low risk categories. Mine-wise action plan to mitigate high and moderate risks and bring such mines into low risk category has been done by CIL. The government has made it mandatory to annually conduct safety audit of all coal mines. In December last year, CIL arm Eastern Coalfields saw Lalmatia mine collapse that claimed 18 lives. The incident took place on December 29 when a massive mound of earth came crashing down on excavators at the Lalmatia open cast coal mine, the worst such disaster in over a decade. Even as Essar Power seeks tariff hike to revive its 1200 MW imported coal-based power plant at Salaya in Gujarat after the apex court denied compensatory tariffs to power plants based on imported coal, the company has started exploring options to import coal from countries other than Indonesia to reduce the impact of higher coal price. The higher cost of coal has led to high under recovery of around 55 paise per unit at the Salaya plant, leading to complete wipe-out of its net worth in the last five years. Essar Power is evaluating coal sourcing from Russia, Mongolia, Cambodia, China and Australia to isolate its Salaya plant from the current volatility of coal price. The company, is negotiating the landed price of coal through reverse e-auction method to arrive at cheaper options instead of spot market price. At present, the landed price of coal from Indonesia is around $85/tonne, which has more than doubled in the last six months. Salaya plant has the capability to process around 30 different type of coal, which it plans to optimise for its best use. The company has sought hike in tariff to the extent of increase in imported coal cost excluding the fixed cost.

KPMG will chart out Vision 2030 for CIL, which is uncertain about the future of coal and wants to diversify. The monopoly has just issued a letter of intent to KPMG, which would soon be followed by awarding of contract following which, the consultant will submit its report in 14 weeks. PwC, Delloitte India and KPMG were in the race. But KPMG was chosen for the job. In fact, KPMG has prior experience with CIL when it prepared Vision 2020 for the company a few years ago. The monopoly invited bids for vision 2030 because coal is likely to decline in India’s energy mix although it is expected to remain the mainstay for several years. According to CIL, the government believes that India does not need additional coal-fired power plants till 2027 because some 50,025 MW coal-based power plants are under construction along with some 100,000 MW renewable power capacity. According to the document inviting bids, KPMG will have to present a draft document of the Vision 2030 within eight weeks. This would be followed by two workshops — one for coal producers and another for coal consumers. It will then have to upload the draft document online for public opinion. After two additional weeks, KPMG will make a presentation to consumers along with public opinion to CIL as well as the coal ministry and then submit the final report.

NTPC Ltd plans to invest $10 billion in new coal-fired power stations over the next five years despite the electricity regulator’s assessment that thermal plants now under construction will be able to meet demand until 2027. In the first phase, India’s biggest power producer, NTPC, plans to build three new plants with a combined capacity of more than 5 GW, nearly double the capacity of those currently being phased out. The proposal also comes as several coal-fired stations built in the last power boom a decade ago are standing idle due to softer-than-expected demand. CIL is struggling to sell its stockpile as a result. More than 300 million of India’s 1.3 billion people are still not hooked up to the grid, according to NITI Aayog, which makes policy recommendations to the government. As connections improve, the panel reckons, the country’s per-capita power consumption could jump around a third to up to 2,924 kilowatt-hours by 2040 from 2012 levels. In the next decade, the around 50 GW of capacity from thermal plants due to come online by 2022 will meet demand, the CEA said. Around 78 percent of generated power in India at the moment still comes from coal-fired plants, however, making it one of the biggest users of the dirty and cheap fuel in the world. NTPC’s proposal is to build plants of two 660 MW units each at Singrauli in Madhya Pradesh and Talcher in Odisha.

Rest of the World

Coal prices’ march to eight-month highs, driven by China’s huge appetite for power consumption, looks like an interlude in a longer-term decline and is seen losing traction later this year. Asia’s benchmark physical coal prices have gained more than a third from lows seen in May to nearly $98/tonne while European benchmark API2 2018 coal futures are at eight-month highs of around $74/tonne. China had cut coal capacity by 111 mt by the end of June, representing 74 percent of its target for this year. Analysts expect average futures prices to fall to $60-$70/tonne in the third and fourth quarters of this year and $50-$65/tonne in the first quarter of next year. China plans to add 200 mt of new coal mining capacity this year, in addition to the 90 mt already added in the first half of this year. In January, the NDRC said it wanted Chinese coal prices to trade in a range of $74-81/tonne and would take action if they were outside this. Mining and electric utility executives in China are preparing for a possible government intervention into coal markets after prices hit the $88.25/tonne threshold the NDRC said would trigger steps to cool prices. A prolonged heatwave across northern China, hydropower cuts in the south, a fresh crackdown on mine safety and imports curbs have triggered a weeks-long rally in the world’s top buyer of the fuel. In January, NDRC said in a document it is comfortable with a price of $69.12 to $83.82/tonne and will use measures to cool the market if it rises above 600 yuan. But spot physical prices offered by major producers, such as Shenhua, ChinaCoal and Shandong Energy, are already at $89/tonne sources with the three companies said driven by strong demand.

The US EIA has projected that coal will briefly retake its crown from natural gas as the primary fuel for power generators in 2017 due to an increase in gas prices. Coal, however, is expected to lose that title again in 2018 as producers boost gas output and utilities to retire more coal plants for environmental and economic reasons, the EIA said. Coal lost its title to gas for the first time ever in 2016 when gas prices dropped to their lowest since 1999. Coal had been the primary fuel for US power plants for the last century. It projected coal’s share of generation would rise to 31.3 percent in 2017 before sliding to 31.2 percent in 2018. That compares with 30.4 percent in 2016. Despite the projected increase in coal’s use in 2017, EIA forecast total energy-related carbon dioxide emissions would fall to 5,141 mt in 2017, the lowest since 1992, before rising to 5,230 mt in 2018 due to an increase in emissions from the transport sector.

Nearly 60 percent of Polish energy in 2030 will come from bituminous coal and lignite, Deputy Energy Minister Grzegorz Tobiszowski said. Poland, due to a lack of alternative energy sources and as trade unions retain their grip on the industry, currently generates more than 80 percent of its electricity from burning coal produced by its state-owned mines. Despite European Union requirements to cut carbon emissions, Poland has vowed to stick to coal, saying it is its only accessible source of energy and switching to others in a short time would be too costly.

Urging China to cut down on its “severe” coal power overcapacity, the report by Greenpeace East Asia said this could save enough water to meet annual needs of 27 million people in water-stressed areas. The report said that despite reduction in coal powered plants since 2014, the Chinese coal-fired capacity in areas of high water stress continues to increase. However, China’s per capita water resources amount to only one-third of the global average. According to the report, by 2020, more than 60 percent of the coal power industry’s water consumption is projected to take place in areas of high water stress. China is the world’s largest coal consumer, the report said. The report said that if the expansion goes unabated, the coal power capacity in water stressed areas is projected to jump from 437 GW in 2016 to 527 GW in 2020. Based on the report’s findings, Greenpeace urges that China reduce excess coal power capacity in high water stress areas by 179 GW before the end of the 13th Five-Year Plan period which ends in 2020. To support its West-to-East Power Transmission Project of the central government, many coal bases were developed in Central and Western China during the 12th Five-Year Plan period (2011-2015).

Green Peace would be happy to see the opposition to coal in Myanmar said to be motivated by western NGOs.  Opposition to a planned $3 billion coal-fired power plant in eastern Myanmar is highlighting the challenges facing Aung San Suu Kyi’s government in crafting a coherent energy policy in one of Asia’s poorest and most electricity-starved countries. With only a third of the country’s 60 million people connected to the grid and major cities experiencing blackouts, finding investors is tough for Myanmar and it is now looking at options, from coal to deep-sea gas, to boost its power supply. Coal would be one of the quickest ways to ramp up power generation but, as protests against the proposed 1,280 MW project in the eastern Kayin state show, the option is unpopular in Myanmar.

GST: Goods and Services Tax, MW: Megawatt, GW: Gigawatt, bcm: billion cubic meters, Ind-Ra: India Ratings and Research, CIL: Coal India Ltd, SCCL: Singareni Collieries Company Ltd, IPPs: Independent Power Producers, PPAs: Power Purchase Agreements, MCL: Mahanadi Coalfields Ltd, SECL: South Eastern Coalfields Ltd, CCL: Central Coalfields Ltd, MPT: Mormugao Port Trust, CEA: Central Electricity Authority, mt: million tonnes, US: United States, NGOs: Non-Governmental Organizations, PwC: PricewaterhouseCoopers, EIA: Energy Information Administration, NDRC: National Development and Reforms Commission

Courtesy: Energy News Monitor | Volume XIV; Issue 8