Plunging solar costs in India undercut Adani case for Carmichael coal mine

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The cost of large scale solar projects in India is expected to fall again in an upcoming auction, further undermining the case for new coal generators, and the economics of importing coal from mega projects such as the Galilee Basin.

New analysis from researchers at Deutsche Bank suggest that prices for large scale solar projects are likely to fall to around 4.70 rupees per kilowatt hour, well below the Rs5.05/kWh achieved in the last auction.

This will further undermine the case for imported coal, which requires prices of more than Rs6/kWh to make a return, and explains why the Indian government is so focused on solar, and domestic coal, to meet its power needs.

It also explains why groups such as Reliance Power are dumping their international coal mines to focus on domestic solar projects.

Adani is also committing to large domestic solar projects, and is even canvassing solar projects in Australia, although it is yet to renounce on its plans for the controversial, $16 billion Carmichael coal project in the Galilee Basin.

Australia’s energy minister Josh Frydenberg was ridiculed this week when he suggested there was a “moral case” for Australia to export coal to India and other developing countries. Apart from the environmental and climate impacts of coal, the statement ignores basic economics.

The Deutsche Bank analysts say that solar in India is now falling to 90c/watt – and tier 2 module suppliers are selling panels below 50c/watt. The India solar market may finally be “ready to take off”, the analysts say.

“Recent growth of solar in India has been fueled by grid parity, not by subsidies,” they note.

India has set a target of 100GW of solar by 2022, and this may be raised significantly if it also commits to 40 per cent renewables by 2030.

So far, the market has started slowly. But Deutsche Bank says the improving economics means that the Indian market is likely to treble to an annual run rate of 8GW to 10GW in the ext 12-18 months, compared to just 3GW for 2015.

The Deutsche Bank reported that India does not actually suffer from a power shortage – at least not in those areas connected to the grid. Deutsche Bank says India has 280GW of power capacity, and peak demand of just 145GW. Even with technical issues, it can easily account for those peaks.

The problem India has is catering for growing demand, particularly as the economy expands and power is delivered to the several hundred million people not yet connected to the grid. It sees solar – particularly distributed solar which does not need a grid – as the solution.

The energy markets in India and other developing countries are likely to focus in large part on distributed renewables, and a series of micro-grids, in much the same way as new technology enable them to leap-frog fixed line telephony and the fax machine.

“Power generation is not a problem in India today, but given the demand growth expectations and the fact that public/private investments in power projects have been next to nothing, the Indian government sees a potential power shortage in India over the next five years,” the Deutsche Bank analysts wrote.

“In this context, Indian government’s 100GW solar announcement appears to be an interesting strategy to get smaller private developers (domestic and international) to invest in the power sector.

india soalr tariffs

The forecast results of the upcoming solar auction continue the dramatic fall in solar costs in India. Imported coal has become the most expensive source of incremental electricity generation,” Jai Sharda, t a financial expert from Equatorial research, said recently.

Reliance Power this week announced it would sell three coal mines in Indonesia that were supposed to be supply coal for an ultra mega power plant that the company was building.

Work on the 3,960MW power plant at Krishnapatnam has now stopped because the company says the power supply from the plant will be too expensive with imported coal.

Instead, it will focus on large scale solar, and has signed an agreement with the state government of Rajasthan to set up 6 GW solar power capacity. It already operates one large solar PV plant and a concentrated solar thermal power project in India.

Adani has been talking to landowners in Queensland about the possibility of building a solar park in the heart of the coal mining province of the Bowen Basin.

In India, Adani recently announced it would look to build 10 gigawatts of solar and has agreed with the government of Rajasthan to set up a 10,000MW solar park in that state. It has also signed a deal with SunEdison to invest $US4 billion in a solar PV manufacturing facility in the state of Gujarat.  

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  • Ronald Brakels

    At the current low price of $58 US a tonne, the fuel cost alone of imported coal is going to be about Rs 1.75 per kilowatt-hour. And it seems that various taxes and duties on imported coal would increase that by about 7-12%, so the current fuel cost of imported coal is likely to be Rs 1.87 per kilowatt-hour or more.

    I’ve just read a report that said Indian coal power stations can have capital and maintenance costs of just over Rs 3 a kilowatt-hour, but it did rely on an unrealistic 85% capacity factor. And Power Purchase Agreements (PPAs) never seem to be about Rs 3 plus coal costs. They are always more than that. I’ve been told PPAs are currently about Rs 7 for coal whether it is sourced domestically or imported.

    While reading about Indian coal power I saw they have an interesting problem in that it is very labour intensive compared to developed countries and, fortunately for Indians, the cost of labour is rising rapidly. Automation could always be installed as labour costs rise, but retrofitting a plant with automation is an expense.

    But the problem of increasing labour costs is of course nothing compared to the massive toll that coal power takes on Indian life and health. Many of the world’s worst polluted cities are in India and the cost of this externality is not nearly captured by India’s Rs 200 ($1.83) a tonne coal tax. Clearly, with any halfway realistic accounting of externalities, solar is going to be a better deal for the Indian people than coal power.

    • Jacob

      Adani has recently agreed to sell electricity to the Indian Railways for Rs 3.69/kWh (U$0.057).

      Solar PV is within striking distance of beating that. The article above says Rs 4.70/kWh from solar PV should be achieved at the next auction.

      Solar has crashed to U$0.05/kWh in Austin and the Middle East. So once it hits that level in India, it should be game over for coal.

      • Ronald Brakels

        And without knowing the details, that could be a Power Purchase Agreement for electricity from existing capacity. As long as solar (and wind) can set their PPAs below what new coal capacity can, that will stop new coal power stations being built. And since Adani is into solar power, it is possible that is where some of Indian Railway’s electricity will be coming from, even though solar is still only a small fraction of India’s total generating capacity.

        • Coley

          Trouble is,there is no doubting that the Indian and Chinese govts are still going to be heavily into coal for the foreseeable even with there stated commitment to RE and this is always quoted by the deniers, the fact that they are going to((hopefully) reduce imports to zero is always countered by the argument that they are raising domestic production to compensate.
          And let’s be honest, the attraction of fat brown envelopes changing hands will always be a major impediment to the inevitable changeover.
          Though in China, seemingly if you are caught, you exchange said envelope for a one way ticket to heaven courtesy of the bullet.
          Strangely, I find this antidote to corruption refreshing;)

          • Ronald Brakels

            Coal use isn’t about to suddenly disappear from India and China, but cheer up, where solar or wind is cheaper, solar and wind developers should be willing to pay larger bribes than coal developers.

            Other reasons to be cheerful include a national carbon emissions trading scheme in China and the existence of a coal tax in India. Sure they come no where near to capturing all the externalities of coal use, but they are infinitely larger than what Australia currently charges for coal’s externalities. And then there’s the desire of the population for their lungs to stay pink for at least a few months after birth.

            And as wind and solar power increase their penetration, existing coal plants will operate at lower capacity, as we can see occurring around the world, and it will become even less worthwhile to build coal plants, just like it is now impossible to build a new coal plant in Australia.

            So while existing coal plants aren’t about to disappear, new coal plant construction could slow very rapidly.

  • Bungarra

    I would like to know if the politicians can get the same order of bribes from solar compared with the amounts reputed to have been given after the last big power outage in return for greater access to Indian coal reserves. The 60 Bill or so into Swiss accounts etc would go a long way to put in solar. Sources local Kolkata English papers at the time.

    As solar lends its self to home and local use, it will be much harder for those who wish to live off bribes to access any monies. Eventually, this could help reduce the powers of the Elites.

  • john

    It really is sad when Australia’s energy minister Josh Frydenberg repeats the moral story which is so patently not the case with respect to India.
    I would make a note minister assisting; do not use fossil fuel industry hand out bullet points; that are regarded as a total joke.
    The figures just do not add up to supply coal that is dearer to people who can not afford the power not to mention there is no grid to deliver it.
    May go down well talking to the ignorant but not the few who have looked at the situation.