Govt tells coal power plants to subsidize 15GW of solar power

New Delhi: Prime Minister Narendra Modi’s government has ordered some of India’s oldest coal-fired power plants to help make solar farms more competitive by bundling together electricity from both technologies for sale to the grid.

The decision dated 17 July requires state-controlled NTPC Ltd to sell cheaper coal power along with more expensive solar as a single unit. The effect of the order, which was released to industry officials and seen by Bloomberg News, is to reduce the price distribution companies pay for solar power and force them to take more of the cleaner form of energy.

“The lower price ensures the competitiveness of this power in the wholesale market, thus easing the search for alternative buyers,” said Bharat Bhushan Agrawal, a solar analyst for Bloomberg New Energy Finance in New Delhi.

The mechanism is unique to India, where the state-run distribution companies have been losing money because they’re unable to charge customers enough to cover the costs of electricity they buy in the market. The programme will help persuade distributors to buy solar power and support Modi’s goal of having 100 gigawatts of solar capacity by 2022, up from less than 4 gigawatts now.

The order from the ministry of power says plants “that complete 25 years shall be used for solar capacity being established by NTPC.” NTPC will set up 15 gigawatt solar plants by 2019 under the programme, according to a transcript of an earnings conference call released on its website in the last week of August. An NTPC official declined to comment.

Questions sent by text message to the power ministry’s spokesman and to the power minister weren’t immediately answered.

Power distribution companies may resist buying bundled power “because the average cost of procurement is already higher than the billing rate,” said Praveer Sinha, chief executive officer and executive director of Tata Power Delhi Distribution Ltd. “Bundling will make it go higher.”

The plants covered by the programme include coal-fired units named Singrauli, Korba, Rihand Stage I and Ramagundam, which will complete 25 years in service in 2016. Another, Vindhyachal Stage I, will pass that threshold in 2017. Together, the plants have a total capacity of 8,960 megawatts.

Singrauli in north India is the first coal plant to take part in the programme. The 1,700-megawatt unit’s output will be sold along with power from 3 gigawatts of solar installations, the power ministry order said.

“In case of Singrauli, if the present tariff is ₹ 1.80, then the bundled tariff will be only ₹ 3.12 or ₹ 3.15,” A.K. Jha, chairman and managing director of NTPC, said in the earnings call. He said it may be cheaper than the current price of power from thermal plants in the market.

The price would be an improvement over the ₹ 5 to ₹ 6 that solar power costs in wholesale markets. The order prevents the aging plants from depressing wholesale prices by selling their power into the market without solar energy included.

India’s clean energy sector is struggling with the reluctance of electricity distribution companies, saddled with over ₹ 2.5 trillion of losses, to buy more expensive green power.

There’s questions whether the coal plants involved will last long enough to be much use to the solar industry, said Rupesh Agarwal, a partner at BDO India LLP.

“These plants are already 25 years old,” Agarwal said. “Will they function for that many more years? Do we need to extend the lives of these plants to bundle with solar energy when solar on a stand-alone basis is becoming competitive?” Bloomberg