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India’s coal-based power capacity at risk from rising renewables, water shortages

New Delhi: India’s coal-based power generation capacity is facing increasing pressure due to the rise of low-cost renewables, over-capacity and water shortages, according to a report released today by the Institute for Energy Economics and Financial Analysis (IEEFA) and the Applied Economics Clinic (AEC).

The report, Risks Growing for India’s Coal Sector, looks at the ongoing challenges facing India’s coal-fired generators due to changes in the energy sector, fluctuations in water supply and stranded-assets, among others. 

“The energy landscape has changed dramatically in recent years and there are increasing stressors, particularly on the thermal coal sector, that require urgent attention, water being one of the most prominent,” said David Schlissel, co-author and IEEFA’s director of resource planning analysis.

RENEWABLES

Coal-based plants are facing increasing competition from renewables, particularly during the monsoon season as the low-cost renewable energy has a great advantage during the season when coal generation dips while wind and hydro generation peak.

The report highlights the wave of new renewable capacity planned for India – 275 GW by 2027 and 500 GW by 2030. Prices for onshore and offshore wind and solar are expected to continue declining while prices for coal-fired generation are likely to rise. 

“All solar and wind auction prices in India since June 2018 have come in below Rs 3.29 Rs per kWh, less than the average 2018-19 price of coal-fired electricity, at around Rs 3.46 per kWh and equal to $0.045 per kWh, from NTPC -- the state-run utility that operates 53 GW of coal-fired capacity. “The economics already favour renewables, and we expect the cost disparity between renewables and coal to widen as time goes on,” said Schlissel.

WATER STRESS

Groundwater levels across India are in decline. Since 2012, both total annual rainfall and monsoon rainfall have generally been below normal levels ‒ a major concern for coal generation, which requires substantial amounts of water for steam production and cooling, the report states. 

The ongoing water shortage problems in India forced 61 plant shutdowns from 2013-2017, resulting in roughly 17,000 Gigawatt-hours of lost generation and revenue, according to the report. It states the water-related problems are projected to worsen as the impacts of climate change continue to exacerbate the duration and severity of both flooding and drought. 

Around 41 GW of India’s installed thermal capacity is located in drought-affected areas with about 37 GW located in “extreme drought” areas, the report said.

OVER-CAPACITY

The study also points out that the boom in coal plant construction during the early 2010s has resulted in significant over-capacity. The amount of installed coal-fired capacity in India is now 20 percent higher than the country’s peak demand level and 50 Gigawatts (GW) above average demand levels. 

Bryndis Woods, a researcher at the AEC, says India’s overbuilt coal power capacity has left two related problems. “First, utilization rates have fallen, impairing the economic competitiveness of coal plants because they must spread their costs over a diminishing number of kilowatt-hours. Second, over-capacity has burdened the system as a whole since the plants’ capital costs still need covering even if their electric output is not needed,” he said.

The study has recommended India should adopt a policy of no net new coal-fired power generation beyond what is already under construction. Also, an economic assessment should be conducted of the nation’s oldest coal-fired power plants to determine their financial viability, including the cost of retrofitting with pollution controls. A phased, end-of-life closure plan needs to be prepared and implemented