Synopsis
It is welcome news that the Union Power Ministry is considering a proposal to halt all
new coal power plants other than the approximately 30 GW already under
construction. There are 33 “zombie” coal plant proposals (adding up to 27GW) which
are either seeking or have received permits but are yet to start construction.
Not only are these coal plants not needed, they also represent a significant
?247,000 crore / $33 billion investment risk to the Indian economy, to the Indian economy, and speak to the need to adapt legacy electricity planning to fast-changing energy realities. These power plants will be 2 to 3 times more expensive than renewable energy (RE) options and will be surplus to requirement, running at sub-optimal capacity factors.
Allowing new coal power plants to commence construction will not just send mixed signals and distract the market from its ambitious RE targets - it will also jeopardise the growth of the renewablesrenewables industry, misallocate scarce financial resources towards unproductive investments and lock in expensive electricity at a time when the Indian economy needs to lower energy costs.
RE curtailment is already an issue in states like Karnataka and Tamil Nadu, where discoms cut back on purchases if thermal generation cannot be backed down further. This is often exacerbated by the fact that discoms are already locked into paying fixed costs for surplus coal power contracts irrespect .plant utilization levels. In a scenario of surplus generation capacity, this is making new renewable PPAs less attractive to discoms. If an additional 27 GW of new coal plants are built, the locked-in fixed cost payments will make discoms less likely to sign RE PPAs, jeopardising India’s RE targets.
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There is no longer any economic justification for new coal plants, as there are now cheaper, cleaner and more reliable options (mainly wind and solar PV, coupled with battery storage) to meet expected electricity demand growth by 2030. Fortunately, India is no longer at the stage where it needs to follow an “all of the above” energy strategy and can afford to choose options based on reliability, cost and environmental desirability.
Power deficits have been virtually eliminated over the last decade and India’s coal fleet is now underutilised, with plant load factors of 60% or less. Recent analysis by Climate Risk Horizons and Ember shows that India’s 450GW RE target by 2030 will allow India to wean itself off the need to develop new coal. Achieving the RE target would help meet all of India’s increase in electricity demand, assuming demand grows at an optimistic 5% per year. That means there is no need for any new coal powe .capacity beyond what’s under construction. There are 30 GW of coal plants currently at advanced stages of construction, likely to be commissioned in the next 2-3 years. This is roughly equivalent to the capacity of old, highly polluting end-of-life plants that the Central Electricity Authority has said should be retired, which will keep India’s total installed coal capacity largely unchanged by 2030. Retiring these old and inefficient coal plants will improve air quality
and help India meet its . phasedown commitments agreed at the Glasgow Climate Summit last November.
While India has huge coal reserves, relying on these does not ensure “energy security”. This was clear from the power shortages in the last quarter of 2021, caused by disruptions in coal supplies. India’s power sector faced unprecedented coal shortages (due to covid restrictions, mismanagement and extreme weather events) by the second week of October. Roughly two thirds of India’s coal-fired ca .(140GW) had critically low stockpiles, several states had to resort to unscheduled load-shedding and some state DISCOMs even had to buy power at exorbitant prices in the open market. This highlighted the risks of an electricity system so heavily reliant on coal, which has to be mined and then transported hundreds of kilometres to power plants.
Any supply chain disruption – internal or international – can drive India’s electricity prices up and could lead to power outages. Indonesia – a .. preferred source of India’s thermal coal imports – had banned coal exports from January 1, 2022 for close to 10 days, causing thermal coal prices to surge. For many coastal power plants, imported coal from Indonesia is the cheapest fuel source.
To mitigate these risks, India’s power system needs to diversify. That process is underway, but needs to be followed through. India must deliver on its targets to have 175 GW RE capacity by 2022 and 500 GW non-fossil capacity by 2030 - not just ..to maintain international credibility, but because it will increase the stability and reliability of the electricity system while lowering the average cost of electricity for consumers.
Solar PV and battery storage prices are expected to continue their decline. The Lawrence Berkeley National Laboratory has estimated a tariff of Rs. 3.3/kWh in 2025 for PV+battery storage, dropping to Rs.2.8 in 2030 - significantly cheaper than any new coal plant. The LCOE from each of the 27 GW of “zombi .. (assuming commissioning by 2027) will range from Rs. 5.89 to Rs 9/kWh, using conservative inflation assumptions and a probable capacity factor of 55%.
So, if discoms do enter into new coal contracts, they will, in effect, be locking customers into expensive electricity and forsaking cheaper, cleaner options. Substituting 27 GW of proposed new coal plants with solar PV+battery storage will save the Indian power system Rs. 43,219 cr (US $6 billion) a year in terms of reduced power purchas .. cost. Given the long-running financial troubles of discoms, and the expectation that state and central governments will absorb their losses, this choice has implications for government finances as well.
The economics is clearly in favour of the RE+storage path - it’s time for the politics to follow. Coal has played an important role in India’s economic development thus far, and will play a role for a few more years even as India “phases down”. But the electrons of the 21st century will .. ncreasingly come from the wind and sun. The sooner we embrace this change, and the potential economic and environmental benefits it can bring, the better. Unequivocally halting all new coal plants is the first step.