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India's CO2 emissions
India's CO2 emissions have risen by about 2.1% in the first 9 months of 2017 compared to the same period last year.
Preliminary analysis indicates that growth of CO2 emissions in India, the world's third-largest emitter, could be considerably slower in 2017 than in 2016.
Monthly data on consumption of coal, oil products, and natural gas, along with production of cement, indicate much slower growth over the first two-thirds of 2017 compared with the same period in the previous year.
With only three months left in the year our forecast is unlikely to change much further. In 2018, on the assumption that underlying drivers pick up after the bumpy economic ride of 2017, emissions should be expected to grow more quickly again. The demonetisation shock in November 2016 and then the introduction of a national value-added tax in July 2017 have left their mark on 2017's emissions. But in fact the growth rate is not dissimilar to those in 2015 or 2013.
In late September, Prime Minister Narendra Modi announced that the existing targets of full electrification of all villages and households in India would be brought forward. These new, even more ambitious targets, presumed to be linked to the 2019 general elections, will be challenging. All villages are to be electrified by the end of 2017 and all households by the end of 2018, this latter brought forward from the previous target of 2022. Some 40 million households are still without electricity. The current rate of electrification of households is approaching 500,000 per month, but this will need to increase to 2.7 million per month to reach the new target. What this will mean for near-term electricity consumption is unclear. First, the distribution companies are often forced to sell power to rural customers at a loss, something which they cope with by restricting sales to rural areas and increasing sales to industrial customers, who are charged a premium. Second, the remaining unelectrified households are largely extremely poor, and an electricity connection does not mean they will suddenly be using air conditioners.
In early September the April-June GDP growth figures were released for India showing a rate that surprised most observers: 5.7% over the same period last year. The GDP growth rate has now declined for 6 quarters in a row, and this could continue for some time. Economic recovery from demonetisation taking much longer than expected.
The biggest change since our September update is a pick up in the consumption of coal.
[N.B. All growth rates reported in this article have been adjusted to reflect the leap year in 2016. All years are calendar years.]
We estimate that coal consumption has risen by 3.0% to September, compared with the same period in 2016. This is considerably lower than the growth of coal consumption compared to the longer trend (7.5% pa over 2005-16) but similar to the last two years' growth rates. However, Coal India's despatches in the months of August and September showed a significant uptick, compensating for lower than normal production of hydropower, wind and nuclear. August's generation from large hydro stations was down 14% compared to the average for August in 2013-16.
While domestic coal sales are up, and power stations continue to draw down stocks, imports are down. Sales of domestic coal have increased by almost 8% to September, while sales of lignite have increased by over 7%. Imports have dropped dramatically by almost 14% to September, while power station stocks have been drawn down 12.7 Mt to September compared to 8.3 Mt in the same period last year.
Stocks at grid-connected, coal-fired power stations are now less then 60% of what they were in October 2016, and at levels not seen since 2014 when capacity was over 20% lower. Coal stocks at some power stations are at critically low levels: At the end of September, 21 coal power stations were in either critical or super critical status with respect to coal stocks, the highest level since early 2015. Of these, 15 were 'super-critical', meaning they had less than four days' worth of coal stocks. The end of the monsoon season through October is expected to facilitate increased coal production and allow stations to replenish their stocks.
While coal production continues to increase (with increased targets despite lagging demand), the Central Electricity Authority (CEA) has said that, once the current tranche of construction is complete, no more coal-based power generation capacity will be required before 2027 (see section on Capacity, below).
We estimate CO2 emissions from energy-use of petroleum products in India increased by only 0.9% to September, compared to the same period in 2016. This compares with year-on-year growth of 8.3% from 2015 to 2016, but is similar to the low growth of 2012-13.
The introduction of GST in July this year is expected to greatly ease inter-state trade and transport logistics. Not only has the complexity of taxes been reduced, the overall level of tax on transportation has dropped dramatically, and freight costs are down by as much as 50% immediately following the introduction of GST. Such a significant drop in freight costs, and improvements in logistics, is likely to lead in a steep increase in the amount of road transportation and therefore emissions. In the short term, however, fully one quarter of India's trucks were idle at the end of July as their operators struggled to adjust to the new taxation scheme. In addition to problems caused by significant monsoon flooding, this led to particularly low petroleum consumption in August.
Having previously decided to allow petroleum product prices to adjust more in line with the international market, the government, worried about quickly rising oil prices and under pressure from consumers, has now cut the excise duty on petrol and diesel, which will lead to a $US2 billion hit to its revenues this financial year.
We estimate that emissions from natural gas grew by 5.6% to August compared to the same period last year. However, natural gas consumption forms only a small fraction of India's CO2 emissions. Gas production remains low, and while India is already the world's fourth-largest importer of LNG, this is still at very low levels compared to overall energy consumption in the country. India does plan to increase import capacity significantly in the next few years, with one new LNG terminal already contracted and three more in the works, but there are no indications that gas consumption will rise significantly before the end of 2017.
India plans to significantly increase the share of natural gas in the energy supply, to 20% by 2025 compared with 14% in 2010, largely replacing oil. However, significant barriers are likely to hinder this goal.
The price of domestic natural gas is tightly regulated and adjusted only every six months. It was raised by 16% at the end of September.
Production of cement has declined by 6.4% to August compared with the same period in 2016. Much of this decline has been laid at the door of demonetisation, and levels have already begun to recover, after February's production was down almost 16% year on year. The introduction of GST in July has reduced the tax on cement from 30-31% to 28%, leading already to sales price reductions of about 3%; however, the lack of clarity about the new tax rates has contributed to lower sales. The government's massive infrastructure investment programme is expected to lead to higher cement production in coming months. Following the end of the monsoon season, the government's highway- and house-building program should restart.
Renewable energy generation in India has been growing sharply in recent years, with significant investment in both wind and solar generation. Reverse auctions for large solar installations have drawn particular attention for the rapidly declining prices per generated unit of electricity. But wind power capacity has also been expanding very rapidly.
These developments have had significant consequences for the future of coal in India, with already 14GW of new coal capacity cancelled in May this year. However, some of the 'credit' for those cancellations can be given to much slower growth in electricity demand than forecast.
Indeed, some 50GW of new coal capacity is still in the pipeline (see Capacity section, below).
The introduction of GST in July has also affected the solar industry, with uncertainty over the new taxes stalling new tenders. The rapid price declines are also having the perverse effect of causing some states to postpone new auctions in the hope that prices will continue to fall. Two further problems add to this difficult situation. The first is that developers submitted their tenders partly based on the expectation that prices for solar panels would continue to drop. But with increased Chinese demand, and a drop in the production of polysilicon, solar module prices have recently risen; some 80% of solar panels installed in India in the 12 months to March 2017 were of Chinese origin. The second is that Indian states are demanding to renegotiate contracts with developers to get even lower tariffs. Two cases of states successfully renogiating significant tenders and forcing prices down have recently been reported. This is consistent with India's 172nd ranking in the World Bank's 'Enforcing Contracts' measure in 2016 (China was 5th), and is a strong discouragement to investment. By renegotiating contracts and forcing developers' margins down, the loans taken by developers become riskier, leaving lending banks unhappy.
The addition of new wind capacity this year is likely to be greatly subdued because of the government's change from feed-in tariffs to bid tariffs, following the model for solar that has been so successful in driving down costs. In the 12 months to the end of March FY a record 5.4GW was installed, but there are suggestions this could be as low as 2GW or even 1GW this financial year. While the first wind auction, in February 2017, resulted in a tariff of 3.46 rupees per kWh, the second auction, in early October for 1000MW, concluded at Rs2.64/kWh, almost as low as recent solar tariffs of Rs2.44/kWh in Rajasthan (US4c/kWh). Intense competition appears to be driving developers to take significant risks that may not be sustainable. That premise will be put to the test soon with the government just announcing auctions of 4500 MW of wind over the next few months.
Electricity generation from small renewables reached a record 13 TWh in July, helped by a surge in wind generation, which peaks in the monsoon season. But monsoon winds dropped earlier than usual, giving lower than expected generation in August. For context, grid-connected electricity generation from coal, lignite, nuclear, and large hydro amount to about 100 TWh/month.
Renewables capacity has grown significantly in recent years, led by Wind and Solar, both of which have significant scope for continued expansion.
Electricity Generation CapacityIndia's power generation capacity has more than doubled since 2010, with substantial gains in coal and renewables (Figure 10).
According to India's Draft National Electricity Plan, no new coal-fired stations will be required during 2017-22, with current capacity and projected renewables cacpacity sufficient to meet demand growth. This result holds for all three scenarios of renewable additions. However, 50GW is already under construction and likely to be commissioned during that period (see Figure 11). Given that, the load factor of coal-based plants is likely to drop further to about 50%. This is based on assumed annual demand growth of 6.34%; further scenarios with higher growth rates and low addition of renewables capacity do require new coal stations, but still only at most half of those under construction.
While the baseline scenario requires no additional coal capacity during 2017-22, continued demand growth would require 44GW of new coal during 2022-27. In other words, if the 50GW currently under construction are completed by 2022, then no further construction will be required before at least 2027. That makes it remarkable that India continues to approve new plants, including 4GW in Telangana state, which received commitment of a loan of 40 billion rupees from the government-run Power Finance Corporation at the end of September.
Nine nuclear reactors are under currently construction, which will increase capacity from 6680 to 13480 MW. Of these, four will probably be completed during 2017-22 (4×700MW) and another six in 2022-27 (2×1000MW + 4×700MW). A further ten 700MW Pressurized Heavy Water Reactors have been approved, plus two Light Water Reactors, each of 1000MW. This brings total capacity so far under construction or approved to 22.5GW by 2030, well short of the 63GW target given in India's NDC.
This discussion of capacity encompasses only grid-connected generation capacity. Meanwhile, many businesses have installed their own 'captive power plants' to hedge against an unreliable grid. This capacity, almost entirely fossil-based, grew from 22GW in 2007 to 47.2GW at the end of March 2016 (this includes installations of at least 1MW). A significant proportion of this captive capacity (35% in 2007) is diesel, primarily used only for backup when the grid supply is lost, and therefore with low generation output. Overall, captive power represented about 14% of all Indian electricity generation capacity in March 2016.
India's CO2 emissions growth has almost certainly slowed down in 2017. However, the economy is in a state of significant flux, with dramatic changes driven by government policy. India's emissions are still on an upward trend, but the rate of growth is far from stable, akin to an engine that misfires frequently but still delivers sufficient power to drive the vehicle forwards.
Sources of uncertainty
With incomplete data, various assumptions have been necessary to produce an estimate of emissions for the current year.
The most obvious of these is that we do not have data for the entire year, necessitating an assumption that the observed trend thus far in the year will continue to play out over the remaining months. Where we have data spanning several years we are able to make a simplistic estimation of this uncertainty by how much final trends differ from the trends derived from fewer than 12 months.
Data on total national sales from mines are unavailable, so we use the very strong relationship (R2=0.99) between the combined production of state-owned Coal India Limited (CIL) and Singareni Collieries Company Limited (SSCL) – together about 90% of all Indian coal production – and national production, along with an assumption that the delivery patterns of these two companies reflect national deliveries.
For coal we have limited information on changes in stocks. While we do not require stocks data for mines because we use mine deliveries, we have insufficient data on stocks at coal-fired power stations, and must therefore use the longer dataset on stocks at 'coal-linkage' power stations, lately representing 75% of grid-connected coal-fired power generation capacity. These data follow closely the available data for all stations, but not exactly. Furthermore we do not have stocks data for power stations not connected to the grid and other industrial facilities such as cement plants.
We have no data on the energy content of coal. Using physical data measured in tonnes implicitly assumes that the energy content is constant. When the energy content increases (more energy per tonne), emissions will increase even with constant use as measured in tonnes. This is particularly sensitve to the changing ratio of imported to domestic coal, but also to domestic coal quality, which has been deteriorating. Unfortunately no information is available on energy content of coal, and the government's most recent official Energy Statistics annual report used a constant energy content factor for the past ten years.
For despatches from coal mines we have data only for CIL and SCCL, the two state-owned giants. As discussed in the text, total national production tracks their combined production very closely.
For cement we must assume that the clinker ratio in the current year remains the same as the previous year.
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