India’s Electricity Transformation

By Paul Homewood

Renewable proponents are getting excited about the latest news from India:

The Indian energy market transformation is accelerating under Energy Minister Piyush Goyal’s leadership.

The most recent and most persuasive evidence is the collapsing cost of solar electricity—a collapse that has gone beyond anyone’s expectations, and the results are in: solar has won.

The global energy market implications are profound.

Recent events have given manifest life to Mark Carney’s landmark 2015 speech in which Carney, the governor of the Bank of England, warned of stranded-asset risks across the coal industry. This month alone has seen the cancellation of 13.7 gigawatts (GW) of proposed coal-fired power plants across India and an admission that US$9bn (8.6GW) of already operating import-coal-fired power plants are potentially no longer viable.

To put an Australian and a global seaborne thermal coal-trade perspective on it, these development strike at the very viability of the Carmichael export thermal coal proposal. They speak as well to a worldwide transition in progress.

India solar tariffs have been in freefall for months. A new 250MW solar tender in Rajasthan at the Bhadla Phase IV solar park this month was won at a record low Rs2.62/kWh,[i] 12 percent below the previous record low tariff awarded across 750MW of solar just three months ago at Rs2.97/kWh.

The Bhalda Phase record lasted two days, with a more recent 500MW Indian solar auction coming in at Rs2.44/kWh,  7 percent below Bhalda Phase.

We see solar pricing continuing to become even more competitive over time.

Several forces are at work.

In December 2016, India released its 10-year Draft National Electricity Plan, calling for the installation of a cumulative 275GW of renewable energy capacity by 2027, as well as 97GW of other zero emissions capacity (primarily large scale hydro, but also nuclear). Relative to a planned total system capacity of 650GW, the plan sees thermal power capacity falling from 69 percent of India electricity-generation mix in March 2016 to 43 percent by 2027.

http://ieefa.org/ieefa-asia-indias-electricity-sector-transformation-happening-now/

 

We are supposed to believe that solar power is going to rapidly replace coal. But, in fact, the news is not really new at all, and simply confirms what we knew already from India’s Draft National Plan, published in December 2016, and covered here.

But first, some basic facts.

The National Plan called for:

1) An increase in capacity of wind/solar by 2027 of 215 GW, plus 8 GW and 27 GW of nuclear and hydro respectively.

2) Total electricity requirement would rise from the current level of 1400 TWh, to 2132 TWh by 2027.

3) 50 GW of coal capacity was already under construction.

4) Non fossil fuel capacity would account for 56.5% of total capacity by 2027.

5) Wind/solar/bio would provide 24.2% of total generation by 2027.

The renewable commitment simply mirrored that contained in India’s INDC, although that only specified the period up to 2022.

The IEEAFA report acknowledged that the plan looks ambitious but absolutely feasible.

If we plug these capacities in and extrapolate from current load factors (based on BP data), we can take a look at what electricity generation will look like come 2027.

( The figure for fossil fuels is the balancing number).

	Capacity	Load	Twh	Twh
	2027	Factor %	2027	2016
Hydro	73	32	205	129
Nuclear	14	72	88	38
Wind	60	19	100	45
Solar	205	19	341	12
Bio	10	41	36	16
Sub Total Low Carbon	362		770	240
Fossil Fuels	279		1362	1160
Total Electricity	641		2132	1400

In other words, under the Plan, there will still be a big increase in power from fossil fuels, nearly all of which will be coal.

Indeed, the Plan itself states this clearly:

So what about all of these cancellations of coal plants? I’m afraid this is all rather fake news.

As the National Plan also states, there is already a surplus of power capacity in the pipeline, from all sources, and this is naturally putting the squeeze on new projects.

But as the Global Coal Plant Tracker revealed, there is nearly three times as much capacity in the pipeline but not started, as there is under construction. Given that the 50 GW under construction is already more than is needed, it is hardly surprising that projects not even started yet are being shelved.

Indeed, as the table shows, a total of 430 GW has already been cancelled or shelved since 2010.

There is simply nothing unusual at all about recent cancellations.

http://et-advisors.com/wp-content/uploads/ETA-Asia-Coal-Juggernaught_final.pdf

But isn’t solar now cheaper than coal?

Unfortunately, we aren’t comparing like with like. Whilst solar power, particularly in a sunny country like India, has a niche role, it cannot provide power reliably as coal does. As such, it can never play a dominant role.

It is worth bearing mind that we aren’t simply talking about day and night here. For three months every summer, most of India sits under the monsoon, beneath thick cloud and heavy rain.

While some solar power will still be generated, output will be much lower than the rest of the year, and at a time when demand tends to be greatest.

The Indian government is well aware of this, and will continue to ensure that sufficient coal power is always available. Indeed the National Plan also builds in enough coal capacity to cover a 30% reduction in Hydro generation, in case of a failure of the monsoon.

However, just as we are seeing here, coal power plants are suffering financially from competition from renewable energy with little or no marginal costs. Coal plants can only be viable if they are allowed to run at economic load factors.

One of the big problems with India’s electricity market is its curious mix of Central Government, State Government and Private power provision.

Just as in the UK, if India’s electricity system had been designed by electrical engineering experts, rather than developed on an ad hoc basis with conflicting objectives, it would not look like it does now.

And it would also be a lot more efficient!