We’ll be coming out with a detailed report next month on just how deeply serious the India government is about transforming its antiquated electricity market.
In the meantime, signals appear almost daily now that point to where the country is headed under the leadership of Prime Mnister Narendra Modi who has been in office barely a year.
Modi’s energy minister, Piyush Goyal is making a point lately of publically tracking Coal India’s production, for instance, reporting the numbers to parliament every couple of weeks. For the first 65 days of this fiscal year, which began April 1, production was up 11.9 percent year over year. Over the first 30 days it was up 10.9 percent, meaning it grew 12.9 percent year over year in the second 35 days. Relative to a 2 percent compounded annual growth rate over 2008-2013, these recent numbers indicate a staggering surge.
Goyal evidently is realizing that while India is saddled with many problems, domestic coal production is no longer one of them. India doesn’t need to import coal, and I would be amazed if coal import growth rates don’t stabilize over the next few months and start declining by the end of 2015. Such a trend is inevitable unless electricity demand and GDP growth both skyrocket, neither of which is likely.
AT A TIME WHEN CHINA’S DRAMATIC CUTS TO COAL IMPORTS (DOWN 38 PERCENT YEAR ON YEAR TO MAY 2015) are already hammering the sector, India’s new path will undoubtedly stifle seaborne coal markets.
And at face value, trebling coal production in India is bad news for India.
A case can be made that quite the opposite is true. Goyal is moving his focus now to improving grid efficiency and cutting the ridiculous 25 percent “leakage” from the Indian electricity grid, Solve this problem and India flourishes. As Amory Lovins, chairman emeritus of the Rocky Mountains Institute likes to say, energy/electricity-grid efficiency is half the transformation. I’d add that capital markets will provide the rest.
Fail to solve it and everything else fails, because either demand eventually will stall along with the economy or electricity prices will rise by 50 percent or more—something Modi is not likely to tolerate.
India’s unfolding solar boom, incidentally, will support the transformation Modi and Goyal are pushing. The solar-energy consultancy Bridge to India now expects installations of 2.9 gigawatts in 2015-16, triple the rate of 2014-15. Triple them again in 2016-17 and India is on track for 100 gigawatts of new solar-produced energy by 2022, and ambitious goal indeed but not one out of reach.
ONE PARTING DATA POINT OF NOTE: SEMBCORP, THE SINGAPORE-BASED UTILITY COMPANY whose footprint stretches across Asia and Latin America, earlier this year acquired a 60 percent, $170 million stake in Green Infra, one of India’s leading wind-farm developers.
SembCorp is just getting started. Executives now say the company aims to spend $200 million to $250 million per year on renewable-energy installations in India over the next eight years. Modi and Goyal need foreign capital to realize their energy-policy ambitions, and the Singapore investors see an opportunity to put their finances to work.
The government owns two of the largest dozen or so sovereign wealth funds in the world—GIC and Temasek—which have more than $300 billion in combined assets. Managers of those funds will be looking to protect capital by divesting from coal, much as Norway did last week, and by angling to make money by moving into renewables and energy efficiency.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.
