(EnergyAsia, July 23 2012, Monday) — To enhance India’s energy security, the government must act now to increase the nation’s nuclear and renewable energy use while reducing the high dependence of the power industry on coal, said London, England-based consulting group GlobalData.

In a new report on India’s coal industry, GlobalData said the sector has been weakened by the dominance of state Coal India Limited (CIL) that, in turn, has hurt the economy. Coal is the fuel for more than 70% of India’s electricity output.

The report described as “desperate” the government’s attempts to order CIL, the country’s largest coal miner and supplier, to boost production and sign supply agreements with power utilities without paying attention to market conditions.

GlobalData said the government’s intervention for CIL to supply at least 80% of the coal needed by power companies will “not be enough to ease looming coal shortages” facing the country.

CIL has been told it will have to pay its utility customers a penalty equivalent to 0.01% of any supply shortfall.

GlobalData said this will not be sufficient to “motivate” CIL as the penalty will only apply three years after the contracts are signed, and will therefore have no impact on the country’s short-term supply situation.

The report also noted India’s vulnerability in depending on Indonesia for half its coal imports. India faces the dual threats of higher prices and reduced supplies from Indonesia in light of Jakarta’s attempts to raise prices and tighten controls over foreign ownership of its coal mines. Indian power generating companies which recently acquired stakes in Indonesian mines want New Delhi to intervene on their behalf.

Another source of concern is Australia, which accounts for 5% of India’s coal imports. Canberra recently issued a draft mining law to impose tax on coal and iron ore projects from next year, said GlobalData.

In addition to seeking New Delhi’s intervention, India’s Association of Power Producers (APP), a group of 13 private companies, wants the Power Ministry to set up a committee to find “appropriate solutions” to deal with the rising cost of imported coal.

GlobalData wants the government to focus on developing nuclear and renewable energy sources as a long-term solution.

In its paper on the country’s 12th Five Year Plan from 2012 to 2017, the state Planning Commission discussed the possibility of expanding the role of alternative energy sources to limit the country’s carbon footprint, achieve energy security, and diversify its energy mix.

India is actively seeking to develop nuclear power, which is attractive in environmentally conscious countries desiring energy security where demand for energy is growing at a fast pace.

According to GlobalData, India has 20 operating commercial reactors and is building another five that will boost the nation’s total nuclear capacity to 19,350 MW by 2020.

GlobalData predicts that over the next two decades, India’s nuclear energy sector and related trade will be worth about US$100 billion, in the process, helping the country achieve energy security while boosting the economy and meet its environmental goals of producing and consuming clean energy.