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Falling costs of renewables mean that about 62GW of coal-fired generation currently under construction and pre-construction could become stranded.
- Tariffs for solar plants are lower than fuel costs for existing power plants.
- No new coal plants have been announced in the past year.
According to a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA), most of India’s 33 GW of coal-fired power capacity is currently under construction, and the 29 GW in the pre-construction stage will likely end up stranded. In addition, the decreasing price for renewables is making it harder for coal-fired plants to compete. Solar tariffs in India are now below even the fuel costs of running most existing coal-fired power plants, a Research Analyst at IEEFA noted.
While renewables have almost zero marginal generation costs, coal-fired generation has inflationary coal and coal transportation costs presenting a more expensive option for distribution companies. In addition to the financial challenges faced by distribution companies in India, power purchase agreements (PPAs) for coal plants appear more unbankable.
These challenges have resulted in low investor interest in coal generation.“In the last 12 months, no new coal-fired power plants have been announced, and there has been no movement in the 29 GW of pre-construction capacity. This reflects the lack of financing available for new coal-fired power projects, and also the flattening of electricity demand growth,” Shah said. The report also states that it is unlikely that the Central Electricity Authority (CEA) projection that India will reach 267 GW of coal-fired capacity by 2030 will come to fruition. The current state of the market makes it “highly improbable”, it added.
The report recommends that projections for India’s future generation mix should account for the fact that new coal-fired power plants are likely to become stranded assets.