IEEFA Update: India Is Becoming a Transition Force on Par With China and Western Europe

India’s electricity-generation market is changing fast, pushed by sustained deflation in renewable energy tariffs, technological advances in the wind and solar sectors, the availability of lower-cost financing, an acceleration in wind- and solar-tender activity, and a national political desire to abide by the Paris climate agreement.

One indication of change: In 2017, tariffs for both wind and solar in India hitting record lows of Rs 2.43 and 2.44 per kilowatt-hour (~US $38/megawatt-hour) respectively, in heavily-contested, competitive reverse auctions. Some industry observers were skeptical as to the sustainability of these tariffs, but a more recent wind auction—on Feb. 28—by the Solar Energy Corporation of India Ltd. (SECI) yet again obtained a winning bid of Rs 2.44/ kWh (~US $38/MWh). Solar tender activity in India has been impressive as well, with auctions for a total of 14 gigawatts in the last quarter of 2017/18 and an ambitious 30-gigawatt annual target for the next two years.

India has made recent progress, too, on greater integration of variable renewable energy capacity as a result of building out it interstate and international grid connectivity. This revenue-generating export opportunity has been prominently highlighted by both Piyush Goyal, India’s coal minister, and Energy Minister R.K. Singh. This is an important element in the India transition story, as detailed in an IEEFA report published in February, “Power-Industry Transition, Here and Now.”

Another element of note: Minister Singh’s acknowledgement of the underutilization of coal-fired power plants in India, currently at just 57 percent.

ONE SENSIBLE STRATEGY INDIA’S EVOLUTION WOULD INVOLVE exporting electricity to new markets in Nepal, Bhutan, Bangladesh and potentially Sri Lanka and Myanmar. Such a strategy would  accelerate system-demand growth and improve thermal power capacity utilization, alleviating some of the ongoing stranded asset burdens that continue to erode returns in both the Indian power and banking sectors.

IEEFA also sees fuel-agnostic international grid connectivity serving to better integrate more variable renewables capacity and creates a deflationary opportunity that would serve to progressively decarbonize the wider region and limit its growing reliance on expensive and volatile fossil fuel imports.

Land-poor Bangladesh has struggled to deliver on its renewable energy ambitions, but imports of low-cost wind and solar from India would create a win-win situation that would sustainably help power Bangladesh’s economic growth.

Granted, the rapid addition of renewable energy would raise issues of curtailment and integration that would need to be overcome. Given massive, already-sunk investments coal-fired power will remain a major source for baseload power. But grid expansion provides an opportunity to integrate renewable energy and helps to tackle related challenges of economic growth, energy security, energy poverty, carbon emissions, and water and air pollution.

NTPC, India’s largest utility, already has adjusted baseload coal-generation to accommodate the increasing availability of cheaper wind and solar energy in India’s renewable energy-rich southern states of Tamil Nadu, Karnataka and Andhra Pradesh. In addition, the central government has extended the waiver of interstate power transmission charges and losses for solar and wind power investments—provided the plants are commissioned by March 31, 2022.

IEEFA expects global renewable energy prices to continue to see at least 5-10 percent annual deflation. Given this, it is entirely feasible that prices in India will fall below Rs 2.0/kWh in India (~ US $31/MWh) in the next two to three years, barring self-defeating import duties on solar modules.

Overall, a transmission-charge waiver would serve to accelerate renewable energy deployments and price deflation, which will help address the region’s still-prevalent energy poverty.

ALONGSIDE CHINA AND WESTERN EUROPE, INDIA IS POISED NOW to play a leadership role in South Asia, with continued investment in Bangladesh, Bhutan, Myanmar, and Nepal. Of particular recent importance: India agreeing to provide transmission infrastructure to expand energy trade with Bangladesh, with the near doubling of grid capacity from 600 megawatts to 1.1 gigawatts due for completion by June 2018. This grid construction will open the door to lower-cost, increasingly renewables-based energy exports to the benefit of both countries.

Minister Goyal has long sought to end India’s reliance on expensive and inflationary imported thermal coal. In IEEFA’s view, improved railway connectivity and increased domestic coal production, combined with a rapid scaling-up of renewable energy installations, makes this an increasingly realistic target.

Even with ongoing support for imported thermal coal-fired electricity in India, the fact remains that the nation’s two largest coal plants—the 4-gigawatt Tata Mundra UMPP and Adani Power’s 4.6-gigawatt Mundra plant—are in clear financial distress and for sale at just Rs1 apiece. It is no coincidence that these two plants are 100 percent reliant on expensive imported coal. Given the at least US$1 billion in shareholder wealth destruction at each of these plants, IEEFA questions the strategic and financial sense of Adani Power’s delayed plans to build a new US$2 billion, 1.6-gigawatt import coal-fired power plant at Godda in Jharkhand (685 kilometers inland from a coal port). More reliance on expensive imported coal to generate electricity for export would service only to lock in long-term energy poverty for Bangladesh.

A sign of encouragement can be seen in NTPC’s power-trading arm recently winning a 300-megawatt supply tender to Bangladesh. This deal looks to be fuel-agnostic, and IEEFA believes it will be materially cheaper than electricity generated by Adani’s proposed 100 percent imported coal-fired facility (awarded without reference to a competitive tender).

Moving away from fossil fuel-based electricity not only suits India’s economic and climate-change narrative, but also presents it with a global leadership opportunity. It will allow India to form meaningful partnerships, driving international investment and exports while strengthen peaceful ties with neighboring countries.

Tim Buckley is IEEFA director of energy finance studies, Australasia. Kashish Shah is an IEEFA research associate.

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