October 17, 2017 Read More →

IEEFA Asia: As India Moves, Europe Follows

Low-Carbon Technology Is Where the Smart Money Is Going

As world energy markets transform at an unprecedented rate, India is at the forefront of the shift toward a profitable renewables industry, especially given how the country’s solar belt has the potential to supply 749 gigawatts (GW) of power generation.

As shown in a report we published earlier this month, accelerating this trend will allow India to avoid the costly mistakes made by slow-moving, late-learning European utilities, which have wasted billions on stranded coal and other thermal power assets (see “Global Electricity Utilities in Transition: Leaders and Laggards: 11 Case Studies”).

In Europe, the rise of cheap renewable energy has pulled down wholesale electricity prices, causing financial pain for utilities that have delayed their transition from fossil fuels to renewables. European utilities logged $150 billion in asset write-downs from 2010-2016, and investors that include Goldman Sachs and UBS have been warning for years that coal has reached retirement age and that solar will become the “default technology of the future.”

Similar trends have been apparent now for some time in China and India, where drives to install both thermal and renewable capacity saw coal-fired power station utilization rates drop to record lows of 47 per cent and 57 per cent, respectively, in 2016. This despite electricity demand growing in these countries.

NTPC, the giant, 63 percent state-owned Indian power company that provides 25 percent of the national electricity supply (playing a critical role in the country’s economic activity) historically has been dependent on coal but is now buying into change.

The Indian energy ministry is driving the country’s trend, pushing for energy efficiency and renewable energy targets that are highly ambitious but in IEEFA’s view entirely achievable.

The government has set a target of 175 GW of renewable energy by 2022, including 100 GW of solar and 60 GW of wind. India’s draft Third National Electricity Plan (NEP3) for the next two five-year periods, to 2027, unambiguously concludes that beyond the half-built plants already under construction, India does not require any new coal-fired power stations. The 50 GW of coal power currently under construction nationally will operate at just 50-55 per cent capacity. These proposed new plants don’t replace old coal, they will essentially become stranded assets operating largely as reserve capacity. NTPC has 15 GW of coal-fired capacity in development but plans to retire 11 GW of older capacity.

Despite its history as a fundamentally coal-based power generation utility, NTPC is now rapidly rolling out in-house, utility-scale solar projects and signing power purchase agreements for solar power from private solar operators at record low, deflationary electricity tariffs absent subsidies.

It is even beginning an entry into the electric vehicle sector by setting up charging stations. NTPC has committed to contributing 10 GW of solar capacity to the overall 100 GW government national target, making the company a cornerstone facilitator of India’s national electricity transformation.

Loss-making European utilities are now looking to India for investment opportunities given the country’s impressive renewable energy drive. One of the biggest European power companies, the French utility Engie, which lost a total of some $40 billion during 2010-2016 on fossil fuels and nuclear holdings, intends to invest $1 billion in Indian solar over the next five years. It is also exploring opportunities in Indian wind power. Engie is reported also to be one of the parties interested in the purchase of Singapore-based Equis Energy’s Indian renewable energy portfolio.

Similarly, South Africa’s transition has become a draw. Engie and Italian utility ENEL are among the international companies investing in South African renewables. The country has been running a renewable energy procurement program that is internationally regarded as well-designed and successful, and the country so far 2.2 GW has completed renewable capacity, attracting over $14 billion of investment.

That said, South African utility Eskom continues to fail to appreciate the future role of renewable energy as it continues with expensive giant new coal plants, Medupi and Kusile, even though electricity demand is falling. Eskom now has more than 5 GW of excess coal capacity even before most units of its new plants are operational, and is a current example of a utility business model to avoid.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

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