Coal-fired generation has borne the brunt of the Covid-19 power demand loss, running at half the capacity rate assumed in the Indian Central Electricity Authority’s modelling guidelines used to evaluate the financial and operating performance of new coal-fired power plants.
"Coal-fired power generation has worn more than 100% of the COVID-19 power demand loss," commented Tim Buckley, director of energy finance studies, Institute for Energy Economics and Financial Analysis (IEEFA). "Renewables get priority over coal when power demand drops given their "must run" status, which is a reflection of their zero marginal cost of production. Coal-fired generation, the high marginal cost producer, is losing out," he explained.
Renewables accounted for more than two thirds or 9.39 GW of India's capacity additions in fiscal 2019/20, while new thermal power plants delivered 4.3GW, net the of the 2.5GW removed due to end-of-life plant closures.
Looking ahead, the pricing trends for new electricity generation clearly favour renewable energy over coal, particularly when it comes to expensive non-minemouth or import coal-fired power proposals.
New finance gets behind solar
Financing has dried up for coal, with most of India’s domestic banks following low-carbon strategies of international finance. A landmark 2GW solar tender awarded by NHPC in April 2020 priced at a near record low of Rs2.55/kWh, fixed flat for 25 years. This tender was won by leading Indian renewable energy developers, most of whom have access to global capital backers like SoftBank of Japan, EQT Infrastructure of Sweden, Temasek of Singapore, EDF and Total of France and Brookfield of Canada.
Considering changing preferences of energy finance, IEEFA analyst indicate that India’s National Electricity Plan might have to be reworked. The government assumes an additional 70GW or more of new coal-fired power plants installed by 2026/27, and the closure of another 39GW, relative to the position as at 31 March 2020.
“That assumes some $70bn of new investment in coal-fired power,” Buckley said, suggesting financing for new coal plants will be hard to come by: “Why would any debt or equity capital providers fund a high emission, highly polluting new coal-fired power plant at double the cost of deflationary, domestic renewables?”