New Delhi: India’s coal-fired power plants, which generate about 70% of the country’s electricity, are facing major risks due to over-capacity, low-cost renewables and water shortages, a new report has concluded.
Climate change has exacerbated impacts as increasingly ambitious targets by the government have brought down the price of renewable energy alternatives and water shortages are growing due to erratic monsoons and an increase in extreme rainfall.
“It is our conclusion that these issues, coupled with rising concern over climate change and increasingly ambitious government commitments to address it, will be an insurmountable hurdle for India’s coal sector,” the report from the Institute for Energy Economics and Financial Analysis (IEEFA) said.
According to the report, given the construction boom early on in the 2010s, the coal sector now has significant overcapacity. Coal-fired power capacity in India is now 20% higher than the level of peak demand and 50 gigawatts above average demand levels.
Increased water stress in the country is another factor that is providing significant headwinds to the coal energy sector. Coal-fired power plants require large amounts of water for cooling purposes.
Rapidly depleting levels of ground water, a decline in monsoon rain and increased instances of extreme rainfall have led to a shortage of water across the country. These issues are likely to worsen due to climate change and as a result, IEEFA concludes, the coal fired power sector could face shortages.
Fierce competition from renewable energy sources – wind, solar and thermal power – are also contributing to stress in the coal sector, IEEFA has concluded. Solar and wind auction prices in India, at Rs 3.29 per kilowatt-hour, are now lower than the cost of coal-fired electricity which averaged at Rs 3.49 per kilowatt-hour during 2018-19.
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“The economics already favour renewables, and we expect the cost disparity between renewables and coal to widen as time goes on,” said David Schlissel director of resource planning at IEEFA.
However, with renewables the challenge of grid integration and the lack of consistent supply – wind energy can only be generated when wind blows and solar energy can only be generated when the sun shines – remain impediments in the way of a complete phasing out of coal.
With power demand certain to increase with growing incomes and increased penetration, coal will continue to play a key role in India’s energy generation mix.
The government has recently approved 100% foreign direct investment (FDI) in the coal sector. But, this is unlikely to have many takers in the global environment which is rapidly moving away from coal, Tim Buckley, director of Energy Finance Studies with IEEFA told The Wire.
“Foreign capital markets are moving against thermal coal so it’s going to be very difficult to find too many foreign investors looking to invest in the Indian coal market,” Buckley said.