Energetica India 89 - May 2020

POWER SECTOR 44 energetica INDIA- May_2020 It Is Time to Reassess the Merits of Building New Coal Power Plants Stranded Asset Risks Continue to Rise as Solar Deflation Continues Renewable energy delivered more than two thirds or 9.39 giga- watts (GW) of India’s new generating capacity additions in the fiscal year 2019/20. In contrast, new thermal power plants delivered 4.3GW during 2019/20, net another 2.5GW removed due to end-of-life plant closures. While up from the decade low of just 3.5GW installed in 2018/19, this still marks a near 80% reduction in the rate of thermal power installs delivered in the four years to 2015/16, which at that time was 20GW annually. The Government of India’s National Electricity Plan of 2018 (NEP2018) called for an additional 70GW or more of new coal- fired power plants by 2026/27, and the closure of another 39GW. The NEP2018 was transformational in its thinking at the time. However, there is now a growing disconnect between the Plan for new thermal power and subdued demand growth, the sig- nificant cost disparity and need for flexible peaking capacity, versus the reality of diminishing new coal plant additions over the last five years. This begs the question: who is still willing to finance the US$70bn of new investment implied, particularly as new builds must at least have basic pollution controls installed? More than half of the new coal-fired power plant capacity addi - tions in 2019/20 were equity financed by energy conglomerate NTPC, while the majority of debt financing for recently pro - posed Indian coal plants has been sourced from the non-bank - ing financial institution Power Finance Corporation (PFC) which primarily funds power projects in India. Is this a case of doing one’s civic duty despite the economic costs involved? While both NTPC and PFC are controlled by the government of India, they are also stock exchange listed entities. Like their in - ternational peers, their ongoing share price underperformance suggests a strategic change in direction is needed. Continuing to invest in inflexible coal power equates to an in - vestment in current or soon-to-be stranded assets, which is proving to be a wealth destructive exercise. The pandemic and national lockdown has once again high - lighted India’s entirely unrealistic modelling assumptions of coal-fired power plants which assumes running at 70-80% ca - pacity utilization rates, double the actual rates seen in April 2020. In stark contrast, Indian and international capital is focused on new, more sustainable and cheaper domestic power oppor- tunities. The US$2bn, 2GW solar tender awarded earlier this month at a US$ record low of US$33 per megawatt hour (MWh, or Rs2.55/kWh) provides clear evidence of this. The move last month by global private equity giant KKR to in- vest in renewable infrastructure projects provides a second confirmation of global capital’s growing interest in India. In this note, we explore these trends in more detail. State of India’s Electricity Grid 2019/20 India’s total installed capacity during 2019/20 rose 4% nation - ally to 370.1GW (see Figure 1). Figure 1: India’s Installed Electricity Capacity Additions in 2019/20 (GW) Source: CEA, MNRE, IEEFA calculations Within that, India installed 9.39GW of new on-grid renewable energy capacity, plus some 2GW of behind-the-meter rooftop solar and 0.3GW of large hydro power. By comparison, India installed 4.32GW of net new thermal power capacity. In sum, more than two-thirds of total new power capacity installs were renewable energy. While renewable energy installs are well-down relative to the Government’s ambitious target of 36GW annually through to 2030, required to reach the 450GW total, the fact that renew - Tim Buckley Director of Energy Finance Studies, Australia/South Asia, IEEFA