Finance is deserting coal. Since 2015, 326 GW of proposed coal plants in India had to be cancelled because financiers — mainly public sector banks — who earlier supported this sector are abandoning it.
Their retreat is essentially because coal is getting pricey and cheaper renewables, despite their problem of intermittency, are preferred. Given the current financial distress that state government-owned electricity distribution companies are in, they can hardly opt for pricier coal when cheaper renewable energy is available.
In an auction in February 2020, a bunch of private-sector coal power companies (Adani Power, Jindal, Essar and GMR) quoted a winning tariff of ₹3.26 a kWhr. Comparatively, solar tariffs, even after an upswing from the lowest-ever tariff of ₹1.99 a kWhr, are ruling around ₹2.50. For example, public sector thermal power company NTPC quoted ₹2.48 for 600 MW in an Andhra Pradesh auction in February 2021.
This, added to global pressure against coal, is making financiers weigh their coal power proposals carefully. After Prime Minister Narendra Modi’s announcement, at the recent Glasgow climate conference, on India committing to reducing fossil fuel use, it is hard to see any financier getting excited about a coal-fired project.
“The retreat of commercial banks from coal financing is significant,” says Aarti Khosla, Director, Climate Trends, a Delhi-based company that works towards building awareness around climate crisis and solutions and is one of the two sponsors of a recent report on coal financing. The second sponsor is the Centre for Financial Accountability, a Delhi-based think tank.
In 2017, coal lending in India was ₹60,767 crore; in 2020, it was ₹8,520 crore — an 85 per cent tumble. Notably, the funding in 2020 came from only two government-owned non-banking finance companies, Power Finance Corporation and Rural Electrification Corporation, and they lent for one project — the 1,320 MW Buxar thermal power project in Bihar. Commercial banks stayed away.
“As the growth in India’s energy demand slows, and the number of renewable energy installations rise, the utilisation rate of coal plants will continue to decline. As such, their economics will deteriorate further,” says Khosla.
India has about 33-34 GW of coal plants under construction and another 29 GW in the ‘pre-construction’ stage, but much of this risks getting stranded before completion. “Coal-fired power plants simply cannot compete with the ongoing cost reductions in renewables,” says Kashish Shah, research analyst at the Institute of Energy Economics and Financial Analysis (IEEFA). “Solar tariffs in India are now below even the fuel costs of running most existing coal-fired power plants,” Shah said in a June 2021 press release.
For well over a year, there has been no announcement of a new coal-fired power plant; there has been no significant progress in those under construction, say experts.
The recent shortage of coal and the consequent increase in coal prices have further strengthened the anti-coal mood. The price of imported coal surged from $50 a tonne in August 2020 to over $200 in October 2021. Coal power plants will get paid for this because fuel costs are passed on to the power buyer, but such jolts will put buyers (the distressed discoms) on double alert when signing power purchase agreements from the plants.
Further, the advent of ‘RTC tenders’ for round-the-clock power supply is a veritable last nail in coal’s coffin. RTC suppliers need to have a renewable energy capacity as their major source but may have either battery storage or some thermal capacity to even out supply. In the first ‘RTC tender’ of October 2019, ReNew Power emerged the winner, quoting a tariff of ₹2.9 (annual escalation of three per cent for 15 years) a kWhr; in the second tender of March 2020, the winning tariff was ₹3.01 a kWhr.
“The cost per kWhr of new thermal power plants is already significantly higher than even that of renewable energy-plus storage,” says Jyoti Gulia of JMK Research and Analytics, a Delhi-based consultancy.
In the first seven months of the current financial year, 2.1 GW coal-fired power plants were added to the grid, while 2.4 GW were retired, reducing the overall grid-connected coal capacity. This trend is likely to continue.
A few years ago, a ‘keep-it-under-the-ground’ movement raged in Europe, calling for prevention of mining fossil fuels. Clearly, the wish has been granted.