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What sets India apart in global power market

The International Renewable Energy Agency forecasts that technology, competition, improvements in supply chains, economies of scale and right policies will reduce the cost of electricity from solar and wind power by at least 26% and perhaps as much as 59% between 2015 and 2025. Photo: MintPremium
The International Renewable Energy Agency forecasts that technology, competition, improvements in supply chains, economies of scale and right policies will reduce the cost of electricity from solar and wind power by at least 26% and perhaps as much as 59% between 2015 and 2025. Photo: Mint

India is the only major country that is expected to see a significant rise in conventional capacity additions

Two new reports that forecast trends on the global electricity sector expect India to stand apart on three different counts.

First is solar and wind power costs. The International Renewable Energy Agency (IRENA) forecasts that technology, competition, improvements in supply chains, economies of scale and right policies will reduce the cost of electricity from solar and wind power by at least 26% and perhaps as much as 59% between 2015 and 2025.

But some countries are expected to see lower cost reductions. Among them is India. Cost reductions are expected to be driven by a fall in balance of system (BoS) costs (BoS involves system design, finance costs, installation, grid connection, etc). But if one looks at BoS costs of various countries, India is already in the “low cost" basket, providing limited scope for cost reductions, especially when one compares to major countries like the US, Australia and Japan.

The story is similar in the wind sector, where installed costs are already low in India, partly due to usage of relatively smaller and cheaper turbines. “The total installed cost reduction potential remains significant for many markets, although markets with very competitive cost structures, such as China and India, or restrictive policies, will experience lower than average cost reductions," IRENA said in its report.

The second is conventional energy capacity additions. Bloomberg New Energy Finance forecasts zero-emission energy sources to make up 60% of global installed power capacity by 2040. In the process, conventional energy sources like coal and gas are expected to take a back seat. A combination of pollution regulations, carbon prices and lack of electricity demand growth are expected to lead to the closure of 286 gigawatts (GW) of coal capacity in OECD (Organisation for Economic Co-operation and Development) economies by 2040. China too is dealing with air pollution and has imposed a moratorium on new coal-fired power post 2020.

In this backdrop, India is the only major country that is expected to see a significant rise in conventional capacity additions, primarily due to steady rise in electricity demand, development of domestic mines and easy access to global coal resources. “Low coal prices also mean more new coal capacity in countries such as India. It will see 258 GW of new capacity and trebling of coal consumption by 2040," Bloomberg New Energy Finance said in its New Energy Outlook 2016 report. And further, “India once again is the major economy to buck the trend, becoming Asia’s largest gas power market by 2040, with 79 GW of cumulative capacity," it added.

Third, despite the massive investments in clean energy, world power sector emissions are estimated to rise by 2040, mostly due to the rise in emissions in India and South-East Asia. “Despite $9.2 trillion of new clean energy investment worldwide, equating to $370 billion per year, power sector emissions will still be 5% higher in 2040, as progress in the EU, the US and China is offset by steep emissions growth in India and SE Asia," Bloomberg New Energy Finance said. Power sector emissions in China are likely to fall by 5% in 2015-40, while they are estimated to treble in India.

Overall, India is likely to travel on a different path in global energy trends. It would be interesting to see how industry participants align to this reality.

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