A Morgan Stanley downgrade this month of the Indian utilities industry highlights how renewable energy is becoming so cheap that thermal power, mostly coal, is no longer competitive.
This is a highly significant market signal likely to be accompanied by further growth in the already impressive number of high-caliber international investors moving into India’s renewables sector, including from Japan, the Netherlands, Italy, China, France, Australia, Singapore, Hong Kong and Canada.
While we have long expected India to adopt a leadership role in the global transformation to a low-carbon economy—and while we have been outliers on the point in some respects—it is happening at a speed faster than even we anticipated.
India’s latest draft National Electricity Plan has 57 percent of the country’s energy capacity coming from renewables and other zero-emissions technologies by 2027. This is well ahead of the Paris climate change accord’s target of 40 percent by 2030.
But what’s happening in India is not driven fundamentally by environmental concern. It stems from common-sense economics rooted in the fact that solar is now cheaper than existing coal-fired generations.
India’s state-owned utility, National Thermal Power Corporation (NTPC), offers a case in point on the country’s fast-changing electricity sector. A report we published in May (“NTPC as a Force in India’s Electricity Transition: Leading the Way Toward a New Energy Economy”) details how despite its deep historical connection to coal-fired electricity, NTPC stands now to be one of the country’s key clean-energy enablers.
With economic growth at 7 to 8 percent annually, India is the world’s fastest-growing major economy. And NTPC provides 25 percent of India’s electricity supply, so it plays a major role in the country’s expanding economy.
A NEWS ARTICLE EARLY THIS MONTH ABOUT HOW NTPC WAS PLANNING TO INVEST $10 BILLION in three new coal-fired power stations over the next five years got it wrong. Citing senior officials, the article stated that those projects would generate 5 gigawatts (GW) of electricity and not just replace but nearly double the capacity currently in existence at older plants being phased out. It went on to say that if built those plants would “raise questions about Prime Minister Narendra Modi’s vow to stand by commitments under the Paris climate accord.”
The fact is that NTPC’s official development pipeline—which is what that article was based on—represents its past more than its future.
The latest National Electricity Plan makes it clear that India sees no need for new coal-fired generation beyond what is already being built. Indeed, the Power Ministry has 11GW of NTPC’s older coal-fired plants being shut down over the next five years to be replaced by new, super-critical plants to increase efficiency and reduce India’s carbon footprint. In an electricity market where demand is growing by more than 6 percent per annum, a 1 percent per annum expansion of coal capacity will still likely be needed. But if current trends persist, new demand will be covered increasingly by lower-cost renewables. NTPC will be a crucial player in this transformation.
Chairman and Managing Director Gurdeep Singh, in a recent discussion with IEEFA, noted that NTPC expects to progressively close end-of-life inefficient coal capacity. This will keep its net thermal addition closer to 1GW per annum.
Indian thermal power plants now operate at a utilization rate of 50-60 percent, mainly because demand has not kept up with the rollout of new fossil-fuel generation infrastructure. One innovative solution being proposed to maximize such existing assets is to build solar plants around them. Such a move would leverage current land and grid connectivity and allow NTPC to continue to supply 24/7 power as needed—solar in the day and coal in the balance.
NTPC today is also playing an important role in private solar developments by purchasing the electricity produced by such projects. Its strong balance sheet de-risks private solar investment, helping drive down the cost of solar in a country that has seen a succession of record-low solar bids in 2017. NTPC also been moving more into hydropower and electric vehicle charging infrastructure, further diversifying away from coal.
All of this is a major strategic shift for NTPC, and the world is watching.
Utilities in many countries, including in Australia, France, Germany, Italy and the U.S., are at various stages of business-model transformation in response to a rapid changes in technology and investor preferences. As innovation continues, acceleration toward a cleaner economy will take on an exponential trajectory.
NTPC is becoming a cornerstone in a national electricity transformation that has reached critical mass. “Coal is dead,” as executives at Blackrock, the largest investment group in the world, have asserted recently, and while it will take decades for transition, the momentum toward a new electricity economic is unstoppable.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia. A version of this commentary was syndicated this week on Indo-Asian News Service (IANS).