Sustainability, Strategy & Finance

De-carbonising electricity will take time

Energy security can be an abstract concept. But sometimes it's very real. And it can clash with environmental concerns. In that case energy security seems to win, as it recently has done in India.

Steven Bowen

02 Aug 2024

Energy security is often treated as a bit of an abstract concept. But for some countries it's very real. Take India. The country has been experiencing serious heatwaves. And rather naturally, this has resulted in air conditioning working overtime, meaning surges in electricity demand.

Insufficient electricity supply (and a weak grid) would mean that the air conditioners could not run, and this makes it more likely that more people would die. It was politically or socially important to provide the electricity people need. And if there is not enough renewable generation, then you turn to what is available.

Which is why a recent Thomson Reuters article caught our eye. It turns out that during the recent Indian heat wave, coal and gas made up around 80% of the extra electricity demand. Not great for the planet, but what would you do in their situation?

Why does this matter? Yes, we want countries to phase out coal fired electricity generation but energy security is important as well.

This is a What Caught Our Eye story - highlighting reports, research and commentary at the interface of finance and sustainability. Things we think you should be reading, and pointing out the less obvious implications. All from a finance perspective.

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Coal use surges in India

According to the Thomson Reuters article, electricity use in India surged to 309 billion kw-hours in May and June, when the country was suffering from the pre-monsoon heatwave. This compares with just over 270 billion kw-hours on 2022 and 2023.

Most of this came from coal, which added around 20-30 billion kw-hours, up c. 15% on previous years.

The good news was that despite this surge in demand, the electricity grid stayed stable. Transmission frequency 'only' went below the accepted threshold between 2.3% of the time (in May) and 4.5% in June.

India has been ramping up renewables - with solar installed capacity up 24% pa from the end of 2018. I am sure you will agree, that's a pretty credible performance. This means that renewables are now a third of all capacity, up from 20% only 6 years ago. And this has meant that fossil fuel generation is now down to just over half of total supply capacity.

But not enough to cover the recent surge - which if predictions are correct will become more and more frequent.

I really encourage you to read both the article and the LinkedIn post from the writer John Kemp. In the post he provides some really useful additional background data and analysis.

Coal and India

We have written about coal use in India before. How it's going to be hard for the country to quickly and economically replace coal fired electricity generation.

It's happening, but it's going to take time. And as the recent heat waves illustrate, they are probably going to need to burn a lot of coal for some time, even if they get renewables to a much higher market share.

The good news is that it can be done. Some western countries are there already, and others are getting there fast. And China is closer to the tipping point than many people like to believe. Which raises some interesting questions about what a coal mine is worth if it produces thermal (for power stations) coal.

A last thought

While we are on the subject of coal, what is the future for the other grade of coal (metallurgical), which is used to make steel? Just quickly, despite what some people think, coal is used in steel making in a different way from how it's burned in a coal fired power station. Instead, it's a chemical reaction. Which is why thermal coal and metallurgical coal are different.

And so if steel makers can find a different chemical reaction, then the future for metallurgical coal ('met coal') could also look grim.

To understand how coal is used in making steel - a recent long blog is worth a read. As is a recent report from the IEEFA on the future for met coal in Australia.