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Cheap solar in India sounds death knell for coal imports, Australia’s included

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IEEFA.org

The obstacles to India’s ambitious energy transformation are like everything about India: vast, interrelated, and complex. Yet momentum has a way of rolling over obstacles, and – borrowing from Hindu mythological iconography – Prime Minister Narendra Modi has harnessed the “seven horses” of energy to push the government’s fast-growing electricity-sector transition.

A year into the program, all the evidence suggests momentum is building on a number of key fronts. We’ve published a paper today that explores this phenomenon in detail.

The double-digit decline in the price of domestic solar in India has accelerated into 2015 with new power purchase agreements being signed at record lows of just over Rs5/kWh, fixed flat for 25 years (that is immediately deflationary).
Solar pricing has decreased to such an extent that it is now cheaper than new imported thermal coal-fired power plants at Rs6/kWh.  This new economic reality means it is financially irrational to choose to build another power plant fuelled by imported coal.
The death knell for the seaborne traded coal industry has sounded.

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The Modi government’s goal is to build energy security by diversifying supply reliance beyond coal, hydro, nuclear and gas to significantly expand production of wind, solar and biomass-fueled energy. The program includes the addition of 175 gigawatts of renewables by 2022 and a rapid acceleration in the deployment of distributed-energy microgrids.

A key component of this transformation will be a sustained reduction in the aggregate technical and commercial (AT&C) loss rates of 26 per cent, that is, a drastic fix to a grid system through which electricity today is commonly stolen. Also crucial to the program’s success: Reform of the state-based distribution companies (Discoms) to resolve unsustainable net operating losses, which totaled $11 billion in 2012-13 alone.

Our research models a 60 per cent, or 500 terawatt hours, increase in net electricity demand to 1,318 terawatt hours per annum through 2022. Reducing AT&C losses by just 1 per cent per annum could deliver a 114-terawatt savings, equating to a whopping 23 per cent of India’s required increase in net electricity generation.

And if energy-efficiency initiatives can deliver a net electricity savings of just 1 per cent per annum, those likewise could reduce required electricity generation growth by 75 terawatt hours, or 15 per cent of the total required.

Solar electricity installs of 75GW by 2021-22 could deliver 110TWh or 22 per cent of the required electricity increase.

Access to international finance is key, too, and Softbank’s $20 billion endorsement in June shows the momentum in this realm.

Plans to take wind installations to 60 gigawatts could deliver 19 per cent of the increase. A combined capacity expansion across nuclear, gas, biomass and hydro could deliver an additional 25 per cent.

The net result: India supply enough net electricity gains support 7 per cent annual gross domestic product (GDP) growth in the seven years through 2022. That’s a 60 per cent overall increase, with coal-fired electricity delivering only 32 per cent of the total expanded electricity production required. Even on this point, a 1.25 per cent per annum improvement in average thermal efficiency of coal-fired power plants could reduce the required increase in coal tonnage by a cumulative 65 million tonnes per annum.

Energy Minister Piyush Goyal has been so bold as to say the country can cease thermal coal imports entirely soon, an ambition that is utterly feasible. It’s likely, in fact, that India’s ambition to double its domestic coal production to 1,500 million tones per annum by 2021-22 will oversupply India by 400 million tones per year.

In other words? The end of India’s coal-import market may not be all that far away.

Tim Buckley is IEEFA’s director of Energy Finance Studies; Jai Sharda is managing partner of Equitorials, a research firm specializing in Indian energy markets.

This article was originally published by IEEFA.org. Read more here: http://ieefa.org/indias-energy-transformation-suggests-the-end-of-coal-imports-soon/

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  • Phil Patterson

    Wow, just wow, and this was essentially what you’ve been predicting for some time too Tim if I remember correctly? I’m a massive fan of your work and insight, and just wondering, in your own personal, expert opinion, if you think this means the ADANI and Shenhua projects are doomed to failure and will be scrapped, if India will indeed have zero coal imports by 2021, and if you personally think the idea of coal being completely gone in 20 years is now a genuine possibility? Many thanks for this.

  • JustThink4Once

    Now patiently waiting for Abbott to announce 100% funding of all coal mines in Australia through a tax on renewable energy.

  • nakedChimp

    I hope those at the helm over in India have the best bodyguards they can get..

  • “Our research models a 60 per cent, or 500 terawatt hours, increase in
    net electricity demand to 1,318 terawatt hours per annum through 2022.
    Reducing AT&C losses by just 1 per cent per annum could deliver a
    114-terawatt savings, equating to a whopping 23 per cent of India’s
    required increase in net electricity generation.”

    First of all: the “114 terawatt”, shouldn’t that be “114 terawatt hours“? Energy and power are not the same thing.

    And secondly, the numbers don’t add up. In my book, 1% of 1318 TWh = 13.2 TWh, not 114 TWh. And that is equal to 2.6% of predicted increase. Nothing ‘whopping’ about that.

  • George Michaelson

    “…. A key component of this transformation will be a sustained reduction in the aggregate technical and commercial (AT&C) loss rates of 26 per cent, that is, a drastic fix to a grid system through which electricity today is commonly stolen. Also crucial to the program’s success: Reform of the state-based distribution companies (Discoms) to resolve unsustainable net operating losses, which totaled $11 billion in 2012-13 alone. ….”

    This paragraph mashed two things together which deserve to be dealt with distinctly. One is about systematic theft of power behind the meter. Centralized PV has the same risk and exposure to this problem. Distributed PV would tend not to, because the resale of power back into the grid demands a meter to calculate how much to pay. So in one way, this preferences distributed. (quite apart from potential avoidance of real transmission loss from distance, and improved local reliability: I bet a lot of India which depends on electricity also depends on a 2stroke honda standby power source)

    The second thing is systemic losses in the state level bodies. I have qualms this is language designed to appease the IMF and World bank over liberalization of large scale central electricity as a state monopoly. There is nothing inherently wrong in retention of the gen and distribution in a single entity. There is a belief-system difference here. I’m not happy tying the two things together.