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In January 2017, India’s coal imports declined by 22 percent to 14 million tonnes (refer) because of lukewarm demand from power generating stations. Coal India Limited, which accounts for 80% of domestic coal production, has posted its worst ever financial results for H1-FY17 as revenues declined even as expenses rose (refer). At the same time, PLF of thermal power stations continues to be near all-time lows of under 60% (refer).

  • The Indian government’s aggressive electrification policy – with electrification of over 12,000 villages of the 18,452 unelectrified villages since 2015 – and UDAY reform package for DISCOMs are failing to bolster power demand;
  • India’s coal-fired power sector continues to suffer rising challenges posed by lack of demand, improving price competitiveness of renewable power and growing regulatory risk;
  • Private investors planning long-term investments in coal mining or thermal power generation are likely to be put off by the combination of demand, offtake, regulatory and environmental risks;

The 750 MW Rewa solar project has seen tariffs fall to a record low of Rs 2.97/ kWh. Levellized tariff works out to Rs 3.29/ kWh, 24% below the previous low of Rs 4.34 seen in an NTPC tender in January 2016. Most of this fall can be attributed to lower equipment cost. Solar module prices, constituting about 60% of capital costs, have fallen by 26% in the last year.

The Rewa auction makes solar PV the lowest cost power source in India. In comparison, new coal-fired thermal power today costs about Rs 5/kWh. Gas power is not viable in India due to high cost (over Rs 6/ kWh) and short supply of feedstock. For wind power, even after auctions, tariffs are likely to stay closer to Rs 4/ kWh. The most exciting part of solar technology is that it is still in early stages of its evolution. Further advancements and growth in industry volumes will continue to make solar power ever cheaper. We are potentially looking at solar power costing Rs 2/ kWh by 2020. On top of that, cost of integrated solar-storage systems with 100% power back up is expected to fall below the critical threshold of Rs 5/kWh by 2020.


The Union Budget of India for financial year 2017-18 was presented last week. The Indian budget making exercise is somewhat unique as it is seen as setting the tone for major government policy and reform agenda rather than merely a record of financial book-keeping. From that perspective, the budget was a disappointment as it didn’t break any new ground for the renewable sector. It included a mix of some tinkering manoeuvres and reiteration of previously announced measures.

Key highlights for the sector:

  • Provision of INR 7.45 billion (USD 110 million) for promoting electronics manufacturing under Modified Special Incentive Package (MSIP) and Electronic Development Fund (EDF) schemes;
  • Reduction of corporate taxes from 30% to 25% for businesses with annual income of less than Rs. 500 million (USD 7.3 million) and extension of MAT credit from 10 years to 15 years;
  • Increase in the Ministry of New and Renewable Energy (MNRE) total annual budgeted expenditure by 9%

Madhya Pradesh government completed auction process for the 750 MW Rewa solar project last week (see our previous blogs – link 1 and link2), where tariffs fell to a record low of INR 2.97 (US¢ 4.4)/kWh. Acme Solar, Mahindra Renewables and Solenergi Power won 250 MW each. The tariff will rise annually by INR 0.05 (US ¢ 0.07)/kWh for 15 years equating to a levelized tariff of INR 3.29 (US¢ 4.9)/kWh, 24% below the previous low of INR 4.34 (US¢ 6.5)/kWh seen in NTPC’s Rajasthan tender in January 2016. Most of this fall can be attributed to lower equipment cost (solar module prices have fallen by 26% in the last year) and an improved contractual structure. Project developers will benefit from an unconditional state government offtake guarantee and deemed generation compensation for grid unavailability.

  • The tender would help open the long-term open access market especially for bulk public sector consumers;
  • Solar power is now the most competitive greenfield source of power with a 15-45% cost advantage over other power sources;
  • As cost of renewables falls and capacity increases, policy making focus should shift towards energy storage solutions and redesign of energy markets to address intermittency risk of renewable power;

In a very pleasing development for renewable IPPs, Solar Energy Corporation of India (SECI) has been included as a beneficiary in a tripartite agreement between the Government of India, state governments and the Reserve Bank of India (RBI). The tripartite agreement serves as a payment security mechanism for central government undertakings whereby, in the event of a payment default by any state government undertakings including DISCOMs, they can withhold funds from the centre’s financial assistance to the states. National Thermal Power Corporation (NTPC) has been a beneficiary of this agreement since 2002 and past experience shows that the tripartite agreement acts as a strong deterrent against payment default by state government undertakings.

  • SECI is India’s largest procurer of solar power but it faces persistent concerns about its financial strength despite being owned 100% by the Government of India and a payment security fund being set up;
  • Analysis of previous bids shows that tariffs for SECI tenders are higher by up to INR 0.20 – 0.50 (US¢ 0.30 – 0.75)/kWh in comparison to NTPC tenders;
  • Inclusion in the tripartite agreement is the most decisive and efficient way of dealing with SECI’s offtake risk perception;

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