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India will hit peak coal demand for its power sector within a decade, according to new analysis, helping the world hit its Paris climate targets but creating a problem for the country’s biggest mining companies.
A report by the Institute for Energy Economics and Financial Analysis shows the growth in demand for coal in one of the world’s fastest growing economies will level off by 2027 — far sooner than previous projections.
This would have a big impact on coal consumption worldwide, as India is the second-biggest consumer and importer in the world, and the biggest source of the sector’s growth.
Tim Buckley, director of energy finance studies at IEEFA, said: “We have seen exponential growth rates from renewables, and the 50 per cent reduction in solar tariffs over the last two years suggests that will continue.
“That, added to greater efficiency from coal power plants, means we should see the growth in demand for coal for India’s power sector level off in the next 10 years.”
India’s power sector is mainly fuelled by coal, which provides roughly 60 per cent of its capacity and 76 per cent of its total generation. In the past few years, it has become an increasingly important source of growth for coalminers as China and the US have begun to use less of their product.
With the country’s population growing rapidly and the government of Narendra Modi promising to electrify the whole country, companies are banking on continued growth for the foreseeable future.
Adani Group, one of India’s biggest industrial conglomerates, has given the go-ahead to build a $12.7bn mine in Australia to extract coal that will then be used in its power plants back at home.
But IEEFA’s analysis suggests that the growth in coal demand in India’s power sector could slow down more quickly than people expect, and stall entirely by 2027. In its place will come renewables, which provide 7 per cent of generation, but which IEEFA predicts will account for 27 per cent by 2027.
The change has come because renewable power, and solar in particular, is falling in price more quickly than analysts predicted. Last week Enel Green Power, the Italian renewable power company, agreed to build a solar park in Mexico for a world record low price of just 1.77 cents per unit of electricity.
An analysis by Mercom, a clean energy research company in India shows that in the past quarter the country installed more 2.2 gigawatts of solar power — more than ever before.
Arunabha Ghosh, chief executive of the New Delhi-based Council on Energy, Environment and Water, said: “There is no question that a combination of technology change and market conditions means that the space for new coal is going to shrink more and more.”
Some warn however that the dramatic cost reduction of solar power might also harbour problems for the industry, saying that companies are unlikely to be able to complete projects for the prices they are quoting.
If that happens, said Mr Buckley, it could cause a disruption to the market for a few years, but would not change the long-term decline of the coal industry.