King Coal is tightening its grip as discoms flock to thermal power while cheaper green power waits for buyers, raising questions over India's ability to meet its energy transition goals.
States such as Madhya Pradesh, Bihar, Assam and West Bengal have recently signed power purchase agreements (PPAs) for thermal power at tariffs of as much as ₹6.64 a unit, even though solar and wind power come for ₹2.5-4. The key reason is the 'infirm' nature of renewable power - lack of generation when the sun doesn't shine, and the wind doesn't blow.
Even those renewable projects with combined solar and wind generation, plus battery storage, are not finding takers despite being available at ₹5 a unit or lower, as discoms remain wary of battery supply chains. Meanwhile, thermal provides the necessary base load. According to four people aware of the growing problem in India’s green energy space, this signals a continued weakening in demand for renewable power in the days to come.
While Assam Power Distribution Co. Ltd has signed up for 3.2GW of thermal power at ₹6.64 a unit, Bihar State Power Generation Co. Ltd has signed a PPA at ₹6.08 a unit for 2.4GW. Also, MP Power Management Co. Ltd (800MW), West Bengal State Electricity Distribution Co. Ltd (1,600MW), and Uttar Pradesh Power Corp. Ltd (1.5GW) have signed PPAs for coal power at ₹5.85 per unit, ₹5.81 per unit, ₹5.45 per unit, and ₹5.38 per unit respectively, tariff petitions and orders showed. The Uttar Pradesh Electricity Regulatory Commission is yet to approve the 1.5GW PPA.
“We are not sure about the viability of these proposed (green power) projects, with tariffs being quoted very low for standalone battery projects," an official at a state power distributor that has signed up for thermal power said. "Further, there is an 18% GST on battery services, which would increase the cost of power. Batteries are currently imported, and there remain supply chain concerns. Thermal, on the other hand, is reliable with assured fuel supply and its baseload availability. Also, batteries currently can supply power for up to seven hours, and 24X7 supply would continue to require thermal power in the near future,” the official said on condition of anonymity.
The situation may worsen as India plans to add 100GW of new coal power capacity by 2032. This also comes in the backdrop of India’s green energy trajectory, with power demand growing at around 10% annually. India hosts the world’s fourth-largest coal reserves and is the second-largest coal producer.
The states' scramble for coal-fuelled power comes at a time when 43GW green power capacity with a proposed investment of ₹2.1 trillion languishes without PPAs and power supply agreements (PSAs), as reported by Mint earlier. Also, Rajasthan and Gujarat, two of India's largest renewable power generators, have curtailed solar power production recently.
Green energy developers argue that coal power makes no economic sense.
“If the levelized cost of power and escalation in coal prices are considered, the actual prices of thermal power would go above ₹7 per unit, while the cost of renewable power with storage is much better. There are batteries which run for about four hours and can be used in the evening when the demand is high. There is no genuine reason why discoms should prefer coal, which is a polluting resource, over renewable. There are neither economic nor operational reasons," said Parag Sharma, chief executive officer (CEO) of European alternative asset manager EQT-backed Zelestra India, which has an operational capacity of 600MW, with another 2GW contracted portfolio, of which 1.5GW is under construction.
Buying expensive thermal power also leaves little room for more green power, which states are mandated to buy under India's renewable energy purchase obligations (RPO).
A former executive with the Grid Controller of India said discoms need to come up with detailed resource adequacy plans and stick to them, keeping RPOs in mind.
“As the space to procure green power by discoms shrinks due to the high-cost thermal PPAs, we would see more and more large companies take up green power through open access, along with the growth of rooftop solar and solar-based agriculture,” said Jayant Deo, power sector expert and former CEO of Indian Energy Exchange, the country’s largest power exchange.
Of India’s 509.7GW of installed power generation capacity, coal-based plants account for 43% or 219.6GW; according to the Central Electricity Authority (CEA), India’s apex power sector planning body.
Parth Kumar, program manager at the Centre for Science and Environment's sustainable industrialization unit highlighted that despite the 2023 National Electricity Plan targeting to cut the share of coal-based power to 59% of India's energy mix by FY27, it currently stands at nearly 70%.
“There has been a change in course in the past two to three years. The NEP had projected an addition of 35GW by 2032, and it has increased to 97GW by 2035. Till March this year, its projections showed an increase in demand, and every year, demand surpassed projections. This year, peak demand was projected to be 270GW. But, it didn't reach that level, and the demand has, in fact, come down," he said.
There is a need to efficiently and flexibly use existing capacities, as well as scale up battery storage or other clean alternatives as firm power capacity, Kumar added.
The development has also raised concerns about its possible impact on India's emission targets. The government has set a target to reduce the emissions intensity of its GDP by 45% till 2030. Between 2020 and 2025, the intensity reduced by 36%.
“The new additions are definitely concerning from an environmental and carbon emission point of view. A major concern here is the long-term PPAs which are 25 years in most cases, which discoms are signing with the new plants with a future cost pass-through provision. This will undermine our clean energy and decarbonization goals. There is a need to review the economic longevity of these coal power contracts," CSE’s Kumar added.
“Whenever India has seen some pent-up demand, the country tends to go towards coal. Although the current addition of coal plants is in sync with the national electricity plan as of now, in case coal addition continues beyond what is in the pipeline, it may impact the energy transition and climate change goals,” added Duttatreya Das, energy analyst for Asia at UK-headquartered think tank Ember, focused on energy transition.
Coal-fueled electricity has advantages such as assured fuel supply, stable power generation and continued role to meet the baseload power demand.
“Discoms would primarily look at reliability and availability of power, apart from affordability. They would look at the source of power which is available. Coal provides that reliability," said Anil Razdan, India’s former power secretary, adding there is just not enough transmission capacity to evacuate renewable power.
"For discoms, coal is much more reliable and for power, availability would come ahead of the climate targets," he said.
In India, peak power demand is usually recorded during twice a day—once in the afternoon 2pm to 4pm and later 9pm to 11pm. Despite the rapid growth of solar, India continues to rely heavily on coal to meet demand during peak demand times.
The lack of transmission capacity to evacuate renewable power has led to congestion and concerns of grid instability. Mint earlier reported that in February, clouds over swathes of North India caused abrupt dips in solar power production, raising worries about the stability of the power grid. Later, the national grid operator instructed all electricity companies to be on alert and maintain power supply to preserve the grid's stability.
“The demand in the daytime is largely catered to by solar, and a large chunk of the agriculture demand across the country has now shifted to daytime with the reliance on solar; however, with the lack of energy storage, availability of power during the evening peak is still an issue," said a senior executive with an electricity exchange, requesting anonymity.