Coal Insights. May 2021

CONTENTS 17 Seaborne thermal coal offers rise in May 18 Seaborne coking coal offers rise in May 19 India’s March coal imports down 0.40% on year 20 CIL’s coal production up 4% in April 21 SCCL’s coal production up 62% in April 22 Commercial coal block auction delayed by a month 23 Energy sector rises up to Covid challenge 27 Coal India eyeing 10 mtpa surface gasification project 31 Power Ministry asks states to issue tariff orders 32 Power capacity addition at 5,436 MW in FY21 33 India’s cement production down 12% in FY21 35 India sponge iron production up manifold in April 38 Geo-referencing introduced for detecting, stopping illegal mining 41 US coal losing price war to renewables faster than thought: Energy Innovation 43 China plans steps to cool commodity prices 45 US coal production estimated at 582 MMst in 2021 46 Traffic handled by major ports up 30% in April 47 Indian Railways’ coal handling up 52% in April 51 JSPL postpones shareholder’s meet on power biz sale 54 Corporate update 56 Government update 58 E-auction data 60 Port data

4 Coal Insights, May 2021

6 | COVER STORY

Coking coal: Prospects in a tumultuous year A deep dive into factors any play at global and local levels.

29 | FEATURE India power sector should prepare for climate transition risks Precourt scholar Gireesh Shrimali highlights concerns in a new report.

36 | FEATURE IEA’s Net Zero roadmap sees no new coal projects Chalks out 2040 targets for power sector.

40 | INTERNATIONAL

Anglo American sees gradual demise of coking coal Anglo American Plc expects met coal’s usage starting to fall after the next 10-15 years.

48 | CORPORATE

High coal cost brings down Tata Power operating profits Grade of coal used in Q1 improves.

COVER STORY

Coking coal: Prospects in a tumultuous year Sumit Maitra and Dr Mahul Brahma

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COVER STORY

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oking coal saw its glory days fading away quickly as the Covid pandemic engulfed the world.

Spot price of seaborne premium hard coking coal that remained above $200 a ton in the first quarter of 2019, supported by, among other things, a healthy 10 percent growth in Chinese crude steel production, is now ruling at around $140 after dropping to below $100 a ton in November as the realisation sank in that China, which had suddenly stopped all coking coal shipments from Australia, would continue with its posturing for a prolonged period.

The geo-political tension between China and Australia is not expected to cool down any time soon and this new normal has completely transformed global coking coal trade with Australia finding new customers in India while shipments from Indonesia to US and Canada finding their way to China.

This global rebalancing of coking coal trade pushed nifty Indian steel makers to enter into coking coal contracts at cheap rates that helped, to some extent, overcome the impact of sharp appreciation in iron ore prices that dented their profitability.

What lies ahead for coking coal, particularly in the context of domestic steel sector, where this largely imported commodity accounts for 40-45 percent of the

steelmaking cost for a domestic blast furnace operator?

Coking coal demand outlook

The domestic steels sector had a dream run in the last quarter of the last financial year, ramping up production and sales as the economy opened and export opportunities revived. Soaring steel prices along with lower coking coal prices helped them earn handsome profits despite higher iron ore prices.

“The coking coal market now has a solid backdrop with strong resurgence in global steel production. Steel output is on course to recover to pre-pandemic levels with steel prices at all major markets at historic highs while capacities have rebounded to healthy levels. Key importing countries including India are returning to the seaborne market to satisfy pent-up coking coal needs,” official of Arch Resources, a major US-based coking coal exporter told analysts.

But domestic steel sector is now in a precarious position faced with the prospects of dwindling demand within the country due to halt in infrastructure and construction projects and rapid spread of the Covid-19 pandemic in rural areas that would impact rural demand as well just when income in the hands of the farmers are set to rise due to bumper Rabi crop.

Upward trend in met demand driving improvement in pricing

“Steel output is on course to recover to prepandemic levels with steel prices at all major markets at historic highs while capacities have rebounded to healthy levels. Key importing countries including India are returning to the seaborne market to satisfy pent-up coking coal needs.”

Arch Resources Lucrative export opportunities because of higher international prices offer opportunity to the steel producers to maintain sales and margins as well. China trying to restrain exports to feed its internal demand would help Indian exporters to target newer markets.

In FY21, India’s hot metal production stood at 69.186 million tons (mt). This would peg the total coking coal requirement at around 54 mt in the last fiscal.

India imports close to 85 percent of its coking coal requirement. India in FY21 imported 49.44 mt, the balance demand being met by domestic supplies from Coal India.

Demand of coking coal was projected to grow to 67 mt in 2022 making India one of the largest importer of coking coal in the world.

However, surge in Covid-19 cases in India may pressure demand for imported coal as well.

Coal Insights, May 2021

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FEATURE

Coal India eyeing 10 mtpa surface gasification projects Coal Insights Bureau

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oal India is developing six surface coal gasification projects with an aggregate production capacity of 10 million ton per annum (mtpa).

Minister for Coal Pralhad Joshi recently chaired a review meeting for the coal gasification projects with focus of the projects on coal gas being a ‘chemical feedstock’ rather than an ‘energy commodity’.

“Chaired a review meeting on surface coal gasification projects of Coal India. Have directed CIL to develop 6 coal gasification plants with 10 mtpa coal capacity. This will promote cleaner use of coal while shifting it from an energy commodity to a chemical feedstock,” the minister said following the meeting on May 12.

While the project at the existing Dankuni Coal Complex is under development, other projects in the pipeline are: Utkarsh, Shilpanchal Pariyojona, Ashoka and Mahamaya surface coal gasification projects, Coal India said in its presentation to the minister.

Utkarsh is a project being undertaken by Western Coalfields Ltd in Chandrapur area having capacity of 1 mtpa capacity.

Shilpanchal project is located at West Bengal having 1 mtpa capacity. Ashoka,

located at Jharkhand, have a capacity of 2.5 mtpa capacity.

South Eastern Coalfields has already started work of surface coal gasification at Mahamaya open cast mine at Bhatgaon in Chhattisgarh having 1.5 mtpa capacity.

Projects and Development India Ltd, a PSU, was engaged for pre-feasibility study and preparation of pre-feasibility report for the project.

In addition, Talcher Fertilisers Ltd is setting up a 2.5 mt coal gasification unit along with its fertiliser plant.

Initially, it has been planned to set up various gasification projects wherein Coal India will take care of mining of coal and marketing of the product and gasification cum product conversion plant will be set up through various contract basis.

After successfully establishing the technology with high ash coal in Jharkhand in phase II, more Coal India projects will be identified for coal gasification.

With 20 percent rebate on revenue share in case of future commercial coal mine auctions, it is expected to reach the goal of gasifying 100 mt of coal by 2030.

Surface coal gasification potential

India has a reserve of 289 billion tons of non-coking coal and about 80 percent of coal

Surface coal gasification (SCG) f Partial oxidation of coal into syngas f Major constituents of syngas are CO and H2 f Utilization in production of Hydrogen, chemicals, fertilizers, transportation fuels f Power generation with easy Carbon capture for storage. f Promising pathway to reduce our nation's dependence on foreign oil

While the project at the existing Dankuni Coal Complex is under development, other projects in the pipeline are: Utkarsh, Shilpanchal Pariyojona, Ashoka and Mahamaya. produced is used in thermal power plants.

Coal gasification is considered as cleaner option as compared to burning of coal and utilises the chemical properties of coal.

Synthetic Gas produced from Coal gasification can be utilised in producing Synthetic Natural Gas (SNG), energy fuel (methanol & ethanol), production of urea for fertilisers and production of Chemicals such as Acetic Acid, Methyl Acetate, Acetic Anhydride, DME, Ethylene and Propylene, Oxo chemicals and Poly Olefins.

These products will help in import substitution and help the mission of Government of Atmanirbhar Bharat. Three phase strategy has been chalked out to set up coal gasification projects.

Phase I: Setting up projects on pilot basis

It has been planned to set up two gasification projects on pilot basis one on high ash coal blended with pet coke and the other from low ash coal for the purpose of establishing technology. Details of these 2 projects are as mentioned below: ♦ Talcher Fertiliser plant: Coal gasification based on high ash coal mixed with pet coke. Investment of `13,277 crore is being made by Coal India, RCF and GAIL as equity partners and project is being financed through loan (72 percent) from banks. About 2.5 mt of coal from North of Arkapal block in Odisha allocated to

Coal Insights, May 2021

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FEATURE

India power sector should prepare for climate transition risks

Coal Insights Bureau

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omestic thermal power sector should prepare itself for the impact of the country’s climate transition scenario of 450GW of renewable energy capacity by 2030, a new report by IEEFA has said.

With higher renewable generation displacing coal-based power in India, the thermal power producers will get negatively impacted by drop in potential revenues and costs from the sale of coal-based power as assumed in the business-as-usual scenario, said a report authored by Gireesh Shrimali, scholar from Precourt Institute for Energy at Stanford University.

“This would impact equipment suppliers, generation asset owners and consumers paying the bills, as well as the financial institutions supporting these now stranded or underutilised assets,” Gireesh said.

The financial impact can be captured in reduced operating income, also known as earnings before interest, taxes, depreciation, and amortisation (EBITDA). Reduced EBITDA then means reduced cash flows, reduced operating life and hence reduced valuations.

Climate change risks

Climate change has created financial risks for business. These can be broadly categorised as physical and transition risks.

Physical risk is essentially the impact of a changing climate on revenues as well as costs.

A simple example is higher real estate operating costs due to increasing damages from floods due to rise in average global temperature. For a real estate portfolio, this could result in lower valuations due to anticipated higher costs.

Transition risk, on the other hand, is the financial risk due to changing policies, technologies, and markets.

For example, a business may be planning to operate under a scenario by a particular year, whereas future policy changes may result in a different scenario by that time, which may impact the planned revenues and costs. This is true for power producers reliant on coal power generation, as we discuss below.

In the Indian power sector, a transition scenario is 450GW of renewable energy capacity by 2030 In the Indian power sector, the businessas-usual scenario is the National Electricity Plan prepared by the Central Electricity Authority (CEA).

The last national electricity plan of 2018 predicted a renewable energy capacity of 275GW by 2027, with plans for significant coal capacity addition of 50GW during 2017-2022 as well as 2022-27.

However, at the same time, India has started to commit to more ambitious renewable energy targets, adding to the current target of 175GW of renewable energy capacity by 2022. The most recent one is the target of 450 GW by 2030, first highlighted at the UN climate summit in 2019.

Thermal power producers to see reduced operating incomes

Thus, for India, there is a climate transition scenario of 450GW of renewable energy capacity by 2030, when power generation companies may be planning for a businessas-usual scenario of 275 GW of renewable energy capacity by 2027 based on the National Electricity Plan.

Transition risk might also result in reduced capacity to pay debt, the report said.

Coal Insights, May 2021

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FEATURE

Power Ministry asks states to issue tariff orders Coal Insights Bureau

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ower ministry has asked 17 states to issue power tariff orders. Letters have been issued to states like Arunachal Pradesh, Chhattisgarh, Jharkhand, Karnataka, Madhya Pradesh, Nagaland, Punjab, Rajasthan, Tamil Nadu, Telengana Tripura, Uttar Pradesh, Uttarakhand, West Bengal, Delhi, Jammu & Kashmir and Ladakh on May 3.

“In order to comply with the APTEL (Appellate Tribunal for Electricity) directions and considering the importance of timely issuing of tariff orders under the provision of Electricity Act 2003, I have been directed to request that the tariff orders for FY22 are issued at the earliest in order to ensure the financial health of the Discoms in your state,” the letter written to the individual states by Ghanshyam Prasad, joint secretary at the ministry said.

As per information available with the Power Ministry, some of the SERCs (State Electricity Regulatory Commission) have not yet issued tariff orders for FY22 thereby not adhering to the provisions of the Electricity Act 2003 and directions of APTEL. APTEL in an order in 2011 issued directives to the state SERCs to ensure regular and timely revision of tariff including regular “truing up of tariff ”.

“Distribution sector is a crucial element of the entire electricity value-chain.

Sustainability of the entire power sector is critically dependent on the sustainability and growth of the distribution sector,” the ministry said.

Several states announced tariff orders in March including Odisha and Gujarat on March 26 and March 31 respectively.

As per the letter issued by the Odisha Electricity Regulatory Commission, there has been a minimal rise of 30 paise per KWH/

kVAh in energy charge for consumers other than BPL. The state regulator prescribed 5.60 percent rise in overall tariff.

Gujarat Electricity Regulatory Commission (GERC) in its order, however, didn’t prescribe any power tariff rise for consumers.

The state regulator marginally increased the transmission charges of the state-owned Gujarat Energy Transmission Corp Ltd from the existing 35.03 paise per unit to 36.42 paise for FY22.

What is truing up of tariff?

Most of the Discoms are under financial strain due to the gap between the Average Revenue Realised (ARR) and Average Cost of Supply (ACS).

The debt trap of distribution utilities has serious implications on the financial health of the electricity sector as a whole.

Discoms are needed to generate adequate internal resources to honour Power Purchase Agreements (PPA) made with the generating companies and hence any default in payment will have repercussions on the financial institutions lending to generating companies and future investments in capacity addition.

“One of the most important reasons for poor financial health of Discoms is the inadequacy of tariff to cover the cost incurred by the utilities to procure and supply electricity to the public,” the power ministry had told APTEL. In a study conducted by Forum of Regulators of ten States for assessment of tariff revision and financial viability of Discoms in 2010, it was estimated that an additional increase of up to 39 percent was required to fully recover the cost of supply.

“Several State Commissions are leaving Regulatory gaps in tariff fixation i.e. the tariff fixed for a particular year is not sufficient to cover the ARR for that year. Such Regulatory

As per the Power Ministry, some of the SERCs have not yet issued tariff orders for FY22 thereby not adhering to the provisions of the Electricity Act 2003 and directions of APTEL. Gaps are left as a matter of course and the gap is left to be filled up in the truing up,” the 2011 order of APTEL said.

“Truing up is not being carried on regularly and sometimes not even for several years at a time. Several Commissions have not framed regulations regarding Fuel Surcharge Adjustment Mechanism. Suo moto action to be taken for initiating appropriate proceedings for determination of ARR and tariff fixation in the absence of the applications to be filed by the utilities,” the order said.

Tribunal repeatedly held that regular and timely truing-up expenses must be done since: ♦ No projection can be so accurate as to equal the real situation ♦ The burden/benefits of the past years must not be passed on to the consumers of the future ♦ Delays in timely determination of tariff and truing-up entails imposing an underserved carrying cost burden to the consumers and cash flow problems for the licensees.

Tariff determination ought to be treated as a time bound exercise. If there is any lack of diligence on the part of the utilities, the state commission must play a pro-active role in ensuring the compliance of the provisions of the Electricity Act, 2003, APTEL said.

Coal Insights, May 2021

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FEATURE

IEA’s Net Zero roadmap sees no new coal projects Coal Insights Bureau

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nternational Energy Agency’s roadmap for Net Zero by 2050 has set out milestones including no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants beginning now.

These steps along with others will help global electricity sector reach net-zero emissions by 2040, IEA said in a report.

The report however says that in emerging market and developing economies, which would drive most of the increase in global electricity demand, coal, along with renewables and gas, would remain important.

In the near term, the report describes a net zero pathway that requires the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation.

The pathway calls for annual additions of solar PV to reach 630 gigawatts by 2030, and those of wind power to reach 390 gigawatts.

Together, this is four times the record level set in 2020, the report said.

For solar PV, it is equivalent to installing the world’s current largest solar park roughly

every day. A major worldwide push to increase energy efficiency is also an essential part of these efforts, resulting in the global rate of energy efficiency improvements averaging 4 percent a year through 2030 – about three times the average over the last two decades.

“The clean energy transition is for and about people,” said Fatih Birol, IEA Executive Director.

“Our Roadmap shows that the enormous challenge of rapidly transitioning to a net zero energy system is also a huge opportunity for our economies. The transition must be fair and inclusive, leaving nobody behind.

We have to ensure that developing economies receive the financing and technological know-how they need to build out their energy systems to meet the needs of their expanding populations and economies in a sustainable way,” he said.

In 2020, over 2100 gigawatts of power plants worldwide used coal to produce electricity and heat, and they emitted nearly 30 percent of all energy-related CO2 emissions.

Options to cut emission includes retrofitting coal-fired power plants with carbon capture technologies, co-firing with biomass or ammonia; repurposing coal plants

Total energy supply and CO2 emissions intensity in the STEPS

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“Coal‐fired power plants should be phased out by 2040 unless retrofitted, starting with the least‐ efficient designs by 2030.” to focus on providing flexibility; and, where feasible, phasing them out.

Another challenge, the report said, is related to the scale of capacity retirements envisaged and associated site rehabilitation, starting with coal. The pace of retirement of coal-fired power plants over 2020-50 is nearly triple that of the past decade.

Decommissioning at each site can often last a decade and entail significant cost, and may involve closing a mine as well. In some cases, it may be financially attractive to build a renewable energy project on the same site, taking advantage of the grid connection and limiting the cost of rehabilitation.

Thousands of natural gas-fired and oilfired power plants are also retired by 2050, though these sites are often strategically located on the grid and many are likely to be replaced with battery storage systems.

Electricity to account for 50% of total energy consumption in 2050

It plays a key role across all sectors – from

Electricity generation by fuel and share of coal in the STEPS

INTERNATIONAL

China plans steps to cool commodity prices Coal Insights Bureau

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hina’s Cabinet has announced it will strengthen its management of commodity supply and demand to curb ‘unreasonable’ price increases and prevent them being passed on to consumers.

Since the beginning of 2021, due to multiple factors especially the transmission of global price rise, some commodities have seen extended price rally, with the prices of some varieties hitting new records and China will now work to ensure the supply of commodities and keep their prices stable, to maintain steady economic performance, the State Council’s Executive Meeting chaired

by Premier Li Keqiang, has decided.

“The country’s rich coal resources will be further tapped. Key coal companies will be encouraged to raise production and supply while ensuring safety, and the capacity of wind, solar, hydro and nuclear power will be increased to ensure energy supply during summer peak time,” Chinese state media agency said in a report.

Opening-up will be pushed forward, to re-calibrate the import, export and buffer reserves of commodities, facilitate custom clearance and better leverage international and domestic markets and resources, to more effectively ensure supply and keep prices stable.

“Market regulation will be strengthened.

Industry associations should play their due role in enhancing industry self-discipline.

The regulation of futures and spot markets will be better coordinated and targeted measures will be taken when appropriate to screen abnormal transactions and malicious speculations. Irregularities such as making and executing monopoly deals, spreading false information, price gouging and hoarding

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will be dealt with to the full extent of the law and brought to light,” the report said.

Indonesian coal prices up 50% since December

With China ditching Aussie coal for Indonesian variety, Indonesia’s benchmark monthly price has gone up from $59.65 per ton in December to $75.84 in January to $89.74 for May, as per data provided by the country’s Energy and Mineral Resources Ministry.

The jump of over 50 percent in the benchmark prices is mainly due to rising demand in Asia, particularly in China.

The rise is so sharp that lower calorific value Indonesian coal now trades at higher prices than higher value Australian coal, as per reports.

China coal price rises 10% since April

China Taiyuan coal transaction index has risen by about 10 percent from a level of 139.58 from beginning of April to about 152.95 on May 17.

The index released every Monday, captures Chinese coal prices at the China Taiyuan Coal Transaction Center (CTCTC), country’s largest coal trading centre, based in Shanxi, a coal-rich province.

Prices are up by about 35 percent since the beginning of 2021.

While reopening of Chinese economy has pushed up demand, supplies haven’t gone up in line with demand growth while realignment of global coal trade with the stoppage of shipments from Australia, China’s traditional trading partners have also impacted prices.

Coal output rises 11%

China’s raw coal output rose 11.1 percent

“The country’s rich coal resources will be further tapped. Key coal companies will be encouraged to raise production and supply while ensuring safety, and the capacity of wind, solar, hydro and nuclear power will be raised to ensure energy supply during summer.” year on year to 1.29 billion tons in the first four months of 2021, official data showed.

With coal production in April falling to its lowest since July 2020, a fall of 1.8 percent from a year earlier to 320 million tons (mt), the overall output growth is believed to be not commensurate with rise in demand. The country also urged coal producers to boost output to meet peak demand in summer, the cabinet said.

The January-April volume increased by 12.5 percent from the level in the same period of 2019, putting the annual average growth of the past two years at 6.1 percent, according to the National Bureau of Statistics.

The country imported 90.13 million tons of coal from January to April, down 28.8 percent year on year.

China coal imports

China’s total coal imports in 2020 rose marginally by 1.5 percent to 304 mt against 299.67 mt imported in 2019.

The initial goal stated by the Chinese government was to maintain imports in a range between 277 and 299 mt.

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Tear along the dotted line

Tear along the dotted line