India Pivots to Coal Amidst Gas Supply Woes

As tensions rise in West Asia, disrupting liquefied natural gas (LNG) supplies, India's power sector is turning back to coal. This necessary, though potentially backward step, aims to cover a projected 7.6 GW gap in gas-powered electricity. However, this reliance on coal overlooks a deeper problem: the mounting financial strain and underuse of India's gas infrastructure. These facilities now face significant risks of becoming stranded assets, especially as the world rapidly shifts to renewables and India pursues its own ambitious clean energy goals.

Bridging the Gas Shortfall with Coal

With global LNG flows squeezed by geopolitical tensions, India's Union Power Ministry plans to boost electricity output from its largely coal-fired plants to meet peak summer demand. Gas power stations, providing about 10 GW of peak capacity, currently have only 2.4 GW available, leading to an expected shortfall of up to 7.6 GW due to gas supply issues. Thermal plants are set to fill this gap. The government has added over 51 GW of capacity this fiscal year, including about 9 GW of coal power and 4.5 GW of wind, with another 3 GW of coal capacity expected soon. New battery storage (2,500 MWh) and 2.5 GW of wind power are also coming, intended to support alternative sources. Despite these additions, the immediate situation means a greater reliance on coal, which already supplies over 70% of India's electricity.

Threat to Gas Assets and Energy Transition

This gas supply crisis highlights ongoing issues in India's gas-fired power sector. While gas power is typically more expensive than coal and renewables, its flexibility is vital for grid stability, especially when solar power drops in the evening. This flexibility helps integrate unpredictable renewables. However, India's gas plants have been used less and less, mainly due to high fuel costs. Gas's share in the electricity mix has fallen from 13% in FY2010 to below 2% in FY2025. A study found 31 gas plants, totaling nearly 8 GW (32% of total gas capacity), produced no power in 2025. By April 2025, 5.3 GW of idle capacity was retired, leaving 20.1 GW active. Significantly, 24 of these idle plants are privately owned, meaning 66% of India's private gas capacity is now considered stranded assets, valued at an estimated Rs 650 billion. Banks financed about Rs 500 billion of this. This contrasts with global trends where renewables are growing rapidly. India aims for 500 GW of non-fossil fuel capacity by 2030 and met its 50% target early in 2025, but the current need for coal and the weak gas sector make its energy transition path difficult.

Global Tensions, Local Costs

The conflict in West Asia, affecting key shipping routes like the Strait of Hormuz, has caused major swings in global energy prices. Brent crude has neared $90 a barrel, and spot LNG prices have jumped about 50%. This threatens India's energy security, as the region supplies a large part of its imports, including roughly 68.4% of LNG and over 91% of LPG. Disrupted LNG shipments through the Strait of Hormuz alone affect about 60% of India's LNG imports. Such price swings increase India's import costs, weaken its currency, and boost domestic inflation. The country's energy subsidies, budgeted at around 2 trillion rupees ($24 billion) for FY2025-26, could face additional pressure, potentially needing an extra $4 billion to $6 billion if oil prices stay high. This creates a tough fiscal situation, forcing difficult trade-offs between energy security and economic stability.

Risks and Challenges Ahead

India's dependence on imported fossil fuels, from West Asia and Russia, exposes it to major geopolitical and economic risks. This crisis reveals how fragile its energy security is. While coal offers a short-term fix to secure supply, it harms the environment, goes against long-term climate goals, and may cost more due to lower plant efficiency. At the same time, the Rs 650 billion in stranded gas assets represent a large financial burden, with banks having lent heavily for them. This double challenge—environmental harm from coal and financial risk from gas—creates a strategic problem. Global energy trends favor renewables, and India has ambitious targets, but the immediate need for stable supply from volatile sources like coal complicates its energy transition pace. India's energy policy has evolved through stages of supply, modernization, market transformation, and climate goals. This disruption risks delaying progress on the latter two. Unlike advanced economies phasing out coal, India must balance immediate energy security needs with its cleaner energy ambitions.

The Road Forward

India's electricity demand is expected to grow strongly, averaging 6.4% annually until 2030, driven by industry, electrification, and cooling needs. Solar and wind capacity are growing fast and will meet much of this demand. However, coal power generation is still projected to grow by about 2.5% annually through 2030, keeping its dominant role. Current geopolitical disruptions cloud the predictable growth of renewables and the use of flexible gas power. Relying on imported fuels, like coal or LNG, leaves India exposed to global supply shocks and price swings. The financial strain on the gas sector and fiscal pressures from subsidies add to the complexity. India must manage these immediate supply issues while speeding up renewable energy adoption and dealing with risks from fossil fuel reliance and the financial health of its gas infrastructure.