Energetica India 89 - May 2020

able energy installs nearly doubled the traditional thermal power capacity installs is an indication of the new direction India’s power sector is moving towards. In all, total thermal power closures over 2019/20 were 2.48GW. This is the highest rate of thermal power closure that India has ever seen, to-date at least. 2019/20: The Year in Review Renewable energy reached 87GW of capacity or 23.5% of to - tal power capacity in the fiscal year 2019/20, and provided 10.2% of total power generation (or 21.6% when including hy - dro-electricity). Figure 2: India’s Electricity Capacity and Generation (2019/20) Source: CEA, IEEFA Estimates Coal-fired power generation remained the dominant source of electricity in India during 2019/20. It provided 71.3% of to - tal generation (down from 75.1% two years ago) in a market where total power generation grew by just 0.3% year-on-year, well below the 6% average growth rate seen in the past de - cade. The COVID-19 pandemic and national lockdown is proving extremely problematic for coal-fired power generation, both for existing plants and those that are proposed but yet to get financing. In the first 33 days of the 2020/21 fiscal year, coal-fired pow - er generation was down almost 30,000 gigawatt hours (GWh). This means that coal-fired power generation has worn 100% of the power demand loss, compared to its 71% share of total generation. This is a very clear lesson in the implications of the merit order effect (in India, this is phrased as renewables having “must run” status), where the low marginal cost sources of supply get priority (once built, renewables have a near zero marginal cost of generation), and the high marginal cost producer loses out (in this case, coal). Whereas a decade ago coal-fired power plants were modelled as running at an average 70-80% capacity in a year, during 2019/20 the average coal-fired power plant ran just 55.5% of the time (Figure 2). In fact, during the month of April 2020 the average Indian coal-fired power plant operated at just 40% capacity utilization. Coal-fired power plants unable to operate at the expected utilization rate are operationally less efficient and also have to amortize their fixed costs over a lower level of production, giving a higher than average cost of production. Financiers and promoters of coal-fired power plants clearly have to factor this in as another key financial risk giving rise to stranded assets in the thermal power sector. Even During a Lockdown, Global Capital Will Still Finance Deflationary Solar In contrast to the, at best, dour thermal power electricity mar- ket trends, a landmark 2GW solar tender was awarded by NHPC of India in April 2020. Priced at a near record low of Rs2.55/kWh fixed flat for 25 years, it equates to an Indian record low of US$33/MWh (at the current Rp76 per US$). In addition to raising US$2bn of new infrastructure investment at the start of the worse pandemic in modern history, the funding profile of the winning parties – SB Energy, O2 Power, Eden Renewables, Axis Energy and Avaa - da – is also telling: • SB Energy won 600MW of the tender, bringing global capi - tal to India via its parent company, SoftBank of Japan; • New entrant O2 Power, a startup with US$500m of equity backing from the leading private equity firm EQT Infrastructure of Sweden and the Temasek sovereign wealth fund of Singa - pore, won 380MW; • Eden Renewables, backed by EDF and Total of France, won 300MW; • India’s Axis Energy, which has developed renewable ener - gy projects it has subsequently on-sold to the giant infrastruc- ture investor Brookfield Asset Management of Canada, won 400MW; and • India’s Avaada Energy won 380MW, showing how specialist Indian renewable operators continue to commit significant new capital to this emerging sector. Avaada was founded by Vineet and Sindoor Mittal who had previously founded Welspun Ener- gy before selling it’s 1.1GW renewables portfolio to Tata Power, India’s largest integrated private power company. The range of players in the solar bid clearly shows that while India’s renewable energy targets are exceptionally ambitious, when backed by the right legal and policy frameworks, capital from both global and Indian domestic leaders is available at an exceptionally competitive price. In contrast, a new non-mine mouth or import coal-fired power plant in India would require a starting tariff of Rs4-5/kWh (rising over time with inflation). In April 2020, global private equity leader KKR also entered the Indian renewable infrastructure sector, acquiring 317MW of solar from Shapoorji Pallonji Solar Holdings. This builds on its US$400m investment last year to take control of India Grid Trust, the infrastructure investment trust of Sterlite Power Transmission. POWER SECTOR 45 energetica INDIA- May_2020