Whalesbook
India's Energy Paradox: Coal Power Wins Over Cheaper Green Alternatives
India is facing a significant energy paradox, with state power distribution companies (discoms) increasingly opting for expensive thermal coal power over abundant, cheaper renewable energy sources. Recent Power Purchase Agreements (PPAs) signed by states like Madhya Pradesh, Bihar, Assam, and West Bengal are for thermal power at tariffs as high as ₹6.64 per unit. This is occurring even though solar and wind power are readily available for ₹2.5-4 per unit, and even combined solar, wind, and battery storage solutions are offered at ₹5 per unit or lower.
The Core Issue: Reliability and Storage Concerns
The primary rationale behind this preference for coal is the 'infirm' nature of renewable power. Solar and wind generation are dependent on weather conditions, lacking consistency when the sun doesn't shine or the wind doesn't blow. Discoms also cite concerns regarding the supply chains for battery storage systems, which are crucial for storing renewable energy for use during off-peak times. Thermal power, on the other hand, provides the essential baseload power required to meet the constant demand on the grid.
Financial Implications and Stranded Assets
This strategic choice means discoms are potentially paying more for electricity than necessary, which could translate to higher costs for consumers or financial strain on the utilities. It also casts a shadow over the future demand for renewable energy. A staggering 43 GW of green power capacity, representing an investment of ₹2.1 trillion, is currently languishing without PPAs and power supply agreements, according to earlier reports.
Expert Analysis and Doubts
Energy sector experts are questioning the economic and operational wisdom of this trend. Parag Sharma, CEO of EQT-backed Zelestra India, argues that when considering the levelized cost of power and potential escalation in coal prices, thermal power's actual cost could exceed ₹7 per unit. He states that renewable power with storage offers a superior long-term value proposition and questions why discoms would choose a polluting resource over cleaner alternatives for neither economic nor operational reasons.
Policy Conflicts and Future Outlook
The situation is further complicated by India's ambitious energy transition goals and climate commitments. While the National Electricity Plan aims to reduce the share of coal-based power, plans are underway to add 100 GW of new coal power capacity by 2032. This contradicts the national target to reduce the emission intensity of GDP by 45% by 2030. Parth Kumar, program manager at the Centre for Science and Environment, highlighted that coal's share in India's energy mix remains around 70%, deviating from the target of 59% by FY27.
Operational Hurdles and Transmission Gaps
Anil Razdan, India's former power secretary, points to practical challenges such as insufficient transmission capacity to evacuate renewable power, leading to congestion and concerns about grid stability. He notes that for discoms, reliability and availability of power often take precedence over climate targets. The reliance on coal for meeting peak demand, especially during evenings when solar output drops, continues to be a significant factor.
Long-Term Environmental Impact
Signing long-term PPAs, often 25 years, for new coal power plants with future cost pass-through provisions raises concerns about undermining clean energy goals and decarbonization efforts. Duttatreya Das, an energy analyst at Ember, warns that continued coal additions beyond current pipelines could severely impact India's energy transition and climate change objectives.
Impact
The current trend of prioritizing thermal coal power over cheaper green energy poses a substantial risk to India's climate commitments and its journey towards a sustainable energy future. It could lead to higher energy costs and lock in polluting infrastructure for decades, hindering decarbonization efforts.
- Impact Rating: 8/10
Difficult Terms Explained
- Discoms: Distribution Companies responsible for supplying electricity to end consumers.
- Power Purchase Agreement (PPA): A contract between a power generator and a buyer for the sale of electricity at agreed terms and prices.
- Thermal Power: Electricity generated from burning fossil fuels, primarily coal.
- Infirm Power: Power generation that is intermittent and dependent on external factors like weather conditions.
- Baseload Power: The minimum level of electricity demand that needs to be met continuously.
- Levelized Cost of Power (LCOE): The average cost of electricity generation over the lifetime of a power plant.
- Renewable Energy Purchase Obligations (RPO): Mandates requiring energy distributors to source a specific percentage of their power from renewable sources.
- Open Access: A policy allowing consumers to purchase electricity from generators other than their local distribution company.
- Emission Intensity: The amount of greenhouse gas emissions per unit of economic output (e.g., per dollar of GDP).
- GDP (Gross Domestic Product): The total market value of all final goods and services produced in a country in a given period.