Centre clears 8500 cr gasification scheme as window on coal use narrows

The push to leverage coal resources comes at a time when the Indian economy is projected to grow at 7%.  (Bloomberg)
The push to leverage coal resources comes at a time when the Indian economy is projected to grow at 7%. (Bloomberg)


  • Investment by Coal India Ltd for setting up coal gasification JV also got approved by CCEA

New Delhi: With the window for using coal closing fast, the Union Cabinet on Wednesday approved a 8,500 crore viability gap funding (VGF) scheme for coal gasification.

In another decision, the cabinet committee on economic affairs (CCEA) also approved an equity investment of 3,799.64 crore by Coal India Ltd for setting up coal gasification joint ventures with GAIL (India) Ltd and Bharat Heavy Electricals Ltd (BHEL).

The push to leverage coal resources comes at a time when the Indian economy is projected to grow at 7%, becoming the third largest economy by 2030, with a focus on involving the private sector to reduce carbon emissions.

This also assumes importance against the backdrop of the global energy landscape undergoing a transition amid growing climate concerns, and a focus on environmental, social and governance (ESG) investing.

Coal gasification, the process by which coal is turned into fuel gas, is considered as a cleaner option than burning coal. The gas produced through the process can be used to produce gaseous fuels such as hydrogen, methane, methanol and ethanol among others. The high ash content in Indian coal is also a technical barrier to the larger adoption of coal gasification, according to industry experts.

India’s green energy commitments involve reducing carbon emission intensity of its GDP by 45% by 2030 and installing 500 GW of renewable energy capacity during the period.

Addressing the media after the cabinet meeting on Wednesday, union minister for coal, mines and parliamentary affairs, Pralhad Joshi said that the incentive will be provided under three categories—public sector undertakings, private sector and public sector companies, and for small scale and demonstration projects.

In September, Mint reported that the Cabinet would consider the VGF scheme with a note being finalized for the scheme.

Under the first category, the government has provisioned 4,050 crore under which three projects will be supported with a grant of 1,350 crore or 15% of the capex, whichever is lower, for each project. The minister said that the two approved joint ventures of Coal India and another proposed project of NLC India will also receive grants of up to 1,350 crore under this category.

Another 3,850 crore has been allocated and will be available for both private and public sector entities, wherein a VGF of 1,000 crore or 15% of the capex will be provided for each project. The government will soon seek expressions of interest (EoI) from public and private sector companies for projects with grants under the second category.

In the third category, 600 crore will be provided for demonstration projects of indigenous technology and small-scale product-based gasification plants, under which around 100 crore or 15% of the total capex of each project will be provided.

The selection of entities under the second and third categories will be done through a competitive bidding process. The incentives would be paid to the selected entities in two equal instalments, said an official statement from the union coal ministry.

Noting that India has one of the largest coal reserves in the world, coal minister Pralhad Joshi said that despite the growing demand for power, India would have adequate coal stocks for gasification in the country. India has the world’s fourth largest coal reserve of about 361.41 billion tonnes.

“If we mine even half of our coal reserves, it would be sufficient for more than 100 years. Currently coal is primarily used for power. With gasification, pollution will be reduced to a greater extent," Joshi said.

Further, along with syngas several other products are derived, including methanol, ammonia, ammonium nitrate and DME. 100s of products will be derived when we go for coal gasification," he said. Joshi noted that syngas could be used to in place of liquefied petroleum gas (LPG) and liquefied natural gas (LNG) going ahead.

On the decision for joint ventures for coal gasification projects, the minister said that the cabinet has approved an equity capital investment of ,997.08 crore by Coal India for the proposed coal-to-synthetic natural gas project with GAIL in Burdwan district of West Bengal. The estimate capex for the project is 13,052.81 crore. For Coal India’s proposed coal-to-ammonium nitrate in Jharsuguda district of Odisha through the joint venture with BHEL, an equity investment of 1,802.56 crore has been approved for CIL. The estimated project cost of the coal-to-ammonium nitrate project is 11,782.05 crore.

“So far mostly steel, fertilizer, and coal miners like Coal India and Neyveli Lignite have taken up coal gasification projects in the country. For captive consumption, a few private steel have been successful in using syngas to produce DRI (direct reduced iron). But at a commercial level, merchant coal gasification is still not cost competitive in India compared alternatives like natural gas/LNG, making the government come up with the new incentive scheme. From syngas, apart from using brown hydrogen as a reducing agent in steelmaking, one can also use it to make chemicals like methanol, di methyl ether, and ammonium nitrate. Given the focus on a hydrogen-based energy ecosystem, it may play a major role going ahead," said Ritabrata Ghosh, vice-president and sector head, corporate sector ratings, Icra.

Gasification comes as an alternative use for coal and a product for coal mining majors at a time when power sector, the major demand centre for the fuel is moving towards renewable sources. With the government setting an ambitious net zero target of 2070, coal companies are looking for alternatives to keep their operations relevant and gasification is a significant alternative to tap the fossil fuel and put it for cleaner uses.

Under the National Gasification Mission launched in 2021, the government aims to achieve a target of 100 million tonnes of gasified coal by 2030. The mission aims to map the gasification potential of coalfields, and develop indigenous technologies suitable for various feedstock ranging from low-ash to high-ash coal.

The government has also formulated a policy wherein a provision has been made for 50% rebate in revenue share for all future commercial coal block auctions for the coal used in gasification purpose provided the coal quantity used for gasification is at least 10% of total coal production. Further, separate auction window under NRS sector has been created for making coal available for new coal gasification plants.


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