Loading...

Will the shining solar knight topple “King Coal” in India?


04 March 2015 | Tobias Engelmeier

Will the shining solar knight topple “King Coal” in India?

Around 70% of India’s power comes from coal, less than 1% from solar. Will that change in the next 20 years? Can solar become the new backbone of the Indian electricity system? There is a good possibility that it will. Let’s look at some key drivers.

  • India is just beginning to build the energy infrastructure it needs
  • Solar is practically unlimited and cost trends are strongly in its favor
  • As the energy market will become more flexible, investor preferences will shift away from coal and towards solar

Photo credit: Sierra Club

It is important to clarify that a transition from a coal backbone to a solar backbone requires no shutdown of existing coal plants. India will need to grow its power generation capacity manifold over the next 20 years. The question is: what new plants will be built? On a global level, investments into renewables already outpace investments into fossil-fuel plants. This trend will accelerate and in India it will give the shining solar knight the opportunity to topple “King Coal”. This is good news for India and great news for the global climate, which cannot be controlled unless this shift happens across all rapidly developing countries like India.

Infrastructure

Since India has not yet built its future electricity system, it can more easily leapfrog towards a renewables-heavy, more distributed structure than countries with stable, functioning centralized power systems, such as Europe, the US or even China. That sounds like a good plan.

In reality, however, I think a key driver will be the inability of the government and government-backed or private infrastructure providers to build big infra. A look at the current, insufficient, leaky power grids suggest that this is not something India is cut out to do. Thus, a distributed system will emerge by default. This is how India’s vast, private power backup power market (mostly diesel gen-sets) has come into existence.

Of course, building a solar backbone will require infrastructure, too. Here, storage will play a key role. But storage will also more likely be distributed (e.g. batteries) than centralized (e.g. pump hydro plants). In all likelihood, India’s future power system will continue to be driven by the unsatisfied power needs of its citizens and businesses, not by the governments Five Year Plans.

Privatization

In the process of privatization (think consumer solutions, not infrastructure) the power market will become increasingly more fluid and flexible. New, innovative players will enter, providing all kinds of customized solutions to customers. This process favors renewables and especially solar, because they are more flexible (faster to build, modular, smaller unit sizes, shorter lifecycle) than fossil power plants. In addition, there is a trend of households and businesses going for their own solar solutions – on site (on rooftops) as well as off site (e.g. in solar parks).

In the US, innovative industries, such as Apple or Google, already buy into large solar farms. They have at least three reasons to do so: firstly they want to lock in long-term power prices to re-risk their business. Solar and wind, which have negligible operating expenses, are ideally suited for that. Grid power prices, on the other hand, are expected to only go up. Secondly, grid buying solar can already be cheaper than buying grid power in many places (including in many Indian states). A third reason is going green. This is a smart business decision as the fossil fuel divestment movement gains pace and ever more investors and consumers look towards a company’s green credentials.

Energy pricing

Underlying this shift from solar to coal is, of course, energy pricing. In the UAE a large solar plant has recently offered a tariff of less than USD 0.06 per kWh. In India, tariffs for large plants have come down to around USD 0.10 per kWh. This is already competitive with the cost of new, imported coal. The great thing about renewables as opposed to all fossil fuels is that the more we use, the cheaper they get. The cost of solar has come down enormously since the 1980s, and it has done so consistently every year. There is no reason to presume this trend will stop. Once the cost of storage (today adding around 30-80% on top of the cost of solar) will come down, too – which all industry observers expect – then solar will become a direct replacement for fossil-fuel power.

Today, the cost of coal and other fossil fuels is determined only by supply and demand. Environmental externalities are not accounted for. This might well change in the future. There might be an additional levy on coal, oil and gas usage that takes into consideration the air pollution these fuels cause (Indian cities have the most polluted air in the world) and the emissions and climate damage they cause (think of the debate over “unburnable carbon”).

Investment

This brings me to the last point. The future energy system that India needs to build will depend to a large extent in private investment. The government has made that clear on many occasions. From the point of view of investors, the energy landscape is changing rapidly. In the past, an investment into a coal-fired power plant was considered a fairly safe bet. It is a well-known technology, coal supply is ample in India (at least in theory) and there was no real competition.

A coal-fired plant has a lifetime of around 50 years. It was the perfect annuity investment, easily earned money. However, anyone looking 50 years into the future today will wonder whether that still holds true.

While the power market has been largely the same for the past 100 years, it will transform entirely in the next 10 years due to the growth of new, renewable energy technologies (especially solar) and due to the environmental and climate debates.

Irrespective of the returns a coal investment might promise, the risk side has changed fundamentally and for the worse. Solar, on the other hand, offers the investor speed and flexibility. It is the safe – and smart – bet. Once the majority of investors will be clear on that, solar will rapidly outgrow coal and become the backbone of India’s energy economy.


Recent reports

India Solar Map | December 2023

India Solar Map | December 2023

India Solar Map 2023 is an info-graphic report covering growth of utility scale solar sector – national and state-wise commissioned and pipeline capacity, leading market players and portfolio details of top 16 project developers. Capacity addition in 2023 fell 51% YOY to 5,924 MW taking total utility scale solar capacity to 59,840 MW. Total project pipeline stands at a record 74,161 MW.

India Corporate Renewable Brief | Q4 2023

India Corporate Renewable Brief | Q4 2023

This report provides an update on key trends and developments in the corporate renewable market including capacity addition, key players, policy & regulatory issuance, financing, PPA tariffs and other market trends.

India PV Module Intelligence Brief | Q4 2023

India PV Module Intelligence Brief | Q4 2023

This report captures quarterly trends in module demand and supply, import and domestic production volumes, supplier market shares, break-up by technology and rating, global market scenario, pricing trends across the value chain, key policy developments and market outlook.

India Solar Compass | Q4 2023

India Solar Compass | Q4 2023

This report provides a detailed update of all key sector developments and trends in the quarter – capacity addition, leading players, tenders and policy announcements, equipment prices, financial deals and other market developments. It also provides market outlook for the next two quarters.

Inter-state OA — opportunities and challenges

Inter-state OA — opportunities and challenges

Inter-state transmission system (ISTS) open access (OA) renewable market is growing strongly on the back of multiple drivers including a waiver from ISTS charges together with decarbonisation pressure on corporates and streamlined transmission connectivity approval process. However, the ISTS route savings are viable only for projects commissioned by June 2026 (at least 75% ISTS charge waiver).

India Corporate Renewable Brief | Q3 2023

India Corporate Renewable Brief | Q3 2023

This report provides an update on key trends and developments in the corporate renewable market including capacity addition, key players, policy & regulatory issuance, financing, PPA tariffs and other market trends.

To top