India keeps grip on coal despite renewables investments

The prime minister’s reelection signals the continued support for thermal coal investments.

Thermal coal demand in India is expected to be strong after the reelection of Prime Minister Narendra Modi, S&P Global Platts said, citing analysts and market participants.

According to the firm, India's Bharatiya Janata Party-led National Democratic Alliance won a second term in office, a sign that policies in the energy and commodities sector undertaken during their first term in power would continue in the same direction.

“This is also amid increased coal imports and upbeat views on the country's economic development driven by the expanding manufacturing sector and growing demand for grid power,” S&P Global said.

India-based market sources told S&P Global Platts that with the re-election of Modi, the country's policies are expected to remain largely unchanged. "[Everything] looks good, but we'll need to wait for new announcements and policies though. Some development projects should get funding for sure," said an India-based trader said.

With the support of the government, India's thermal coal imports are expected to grow by 12 million mt year on year to 184 million mt in 2019, while an additional 6.5 million mt is projected in 2020.

Earlier this year, India's Cabinet Committee on Economic Affairs approved investments worth $1.5b (Rs 11,089 crore and Rs 10,439) crore into a power plant each in Uttar Pradesh and Bihar, respectively.

However, according to a report by the International Energy Agency, India's investments in renewable sources are now outpacing those in fossil fuels. The country also raised its 2022 renewables capacity target from 175 GW to 227 GW.

"But that's not to say the country's hunger for coal is going away any time soon. It remains one of the world's largest coal consumers. Investment in supply grew last year, supported by a policy favoring domestic production ahead of imports, although the fuel was still one of the country's largest imports last year," the World Economic Forum said.

"At a time when other nations are curbing coal use, India is bucking the trend and the vast majority of the country is still powered by fossil fuels, mostly coal," it added.