Economy

New coal-fired power plants will be economically unviable: IEEFA

V Rishi Kumar Hyderabad | Updated on June 03, 2021

Stranded asset risk threat looms large over coal plants

Much of India’s 33 gigawatts (GW) of coal-fired power capacity currently under construction and another 29GW in the preconstruction stage will end up stranded, according to Institute for Energy Economics and Financial Analysis (IEEFA).

“Coal-fired power simply cannot compete with the ongoing cost reduction of renewables. Solar tariffs in India are now even below the fuel costs of running most existing coal-fired power plants,” says author Kashish Shah, Research Analyst at IEEFA.

In the last 12 months, no new coal-fired power plants have been announced, and there has been no movement in the 29GW of preconstruction capacity.

“This reflects the lack of financing available for new coal-fired power projects, and also the flattening of electricity demand growth, which has impacted coal the most.”

Despite these headwinds, the Central Electricity Authority (CEA) projects India will reach 267GW of coal-fired capacity by 2030, which would require adding 58GW of net new capacity additions – or about 6.4GW annually.

The report points out it is “highly improbable” that the CEA’s projections will materialise given the ongoing financial and operational stress in the thermal power sector, and puts the case that India’s coal capacity requirements should be urgently revised.

“Any projections for India’s future generation mix should take into account that new coal-fired power plants are likely to become stranded assets,” says Shah.

“The new capacity would only be economically viable if it replaced end-of-life, polluting power plants with outdated combustion technology and locations remote to coal mines.

“Even then, there would need to be sufficient coal plant flexibility to deliver power into periods of peak demand, and the time-of-day pricing would need to be high enough to justify the low over the day utilisation rates.”

Shah adds that without material growth in electricity demand, installing additional inflexible high emissions baseload capacity will increase the financial distress of State-owned Discoms by adding to their burden of paying fixed capacity charges to thermal power plants that are used only sparingly.

IEEFA expects coal-fired capacity in India to peak at 220-230GW by 2025 and model additions of 2-3GW of net new coal-fired capacity annually in this five-year window – only if financing can be found amid the accelerating global retreat from coal.

There is little appetite from investors – except for State-owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) – to risk new capital in a sector that continues to carry $40-60 billion of non-performing or stranded assets.

“Governments, investors and utilities across the globe are rapidly transitioning to cheaper domestic zero emissions renewable energy,” says Shah.

India should take advantage of the falling cost of renewables plus rising viability of battery storage, which can provide clean grid-firming, to meet incremental power demand, it said.

Published on June 03, 2021

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