The Institute of Energy Economics and Financial Analysis (IEEFA) published its India Electricity Sector Transformation report in August 2015. A month later, a number of new data points have emerged to suggest that the sector continues to gain momentum towards a more diversified, domestic oriented electricity grid better oriented towards supporting sustainable growth. The deflationary nature of renewables continues to be firmed up by an influx of new, global capital. Key developments into September 2015 include:
- Coal India Ltd has reported fiscal year-to-August coal production is up 9.4% year on year, triple electricity demand growth of only 3.1% year on year.
- With domestic coal production running at double electricity demand growth, inevitably coal imports have proven the swing factor, with reports showing imports have declined 5% year on year in July-August 2015.
- But the coal-fired power sector remains in serious financial distress, and operating rates have dropped to a new low of 58.4% in July 2015.
- In contrast, the Indian solar sector is seeing record interest, with the latest 500MW tender in Andhra Pradesh in September 2015 being oversubscribed tenfold. With many new global entrants bidding a collective US$5bn, the suggestion is the tariff may set a new record low below Rs5/kWh (with zero indexation for 25 years).
- The onshore and offshore wind, hydro and energy efficiency sectors are all showing positive momentum, assisting in the diversification of the Indian grid and building domestic energy security.
Momentum remains positive for all but imported thermal coal demand.
Indian Coal Production
Coal India Ltd production is up 9.4% year to-date year-on-year in April-August 2015, and dispatches are up 8.3% yoy YTD in the same period, suggesting rail logistics blockages are gradually being overcome. This builds on the record 6.9% growth in production in the year to March 2015, a step-change up from the 1.5% pa growth evident in the prior five years.
Private Sector Production and Coal Block Auctions
The government is preparing the fourth round of coal block auctions to private companies. The 45 operational coal blocks that have so far allotted to the private sector will start to really ramp up production into 2016. Another 160 mines are listed to be auctioned, with a potential 500Mtpa of production from mines currently generating an estimated 60Mtpa.
Indian Coal Imports down 5% yoy Jul-Aug’2015
Total coal imports into India were down 5.1% year-on-year in July-August 2015. August 2015 imports were 18.6Mt, down 4% month-on-month but up 2% year-on-year. July 2015 total coal imports were down 11% year-on-year (yoy). This looks like a historic turning point after the annual 20-30% yoy growth in coal imports over the prior six years, again hinting that a peak in coal imports has been reached in mid-2015.
Power Deficits Declining – Affordability and Discom Losses Now Key
The national peak power deficit in July 2015 was 2.6%, against 3.5% in the same month last year. The annual peak deficit for 2015-16 is expected to be only 2.1-2.5%, a huge drop from the 4.5% for 2013-14 and the near 10% deficits reported in the preceding years. The build out of interstate transmission capacity is a key part of the medium term solution.
“Discom (state electricity distribution companies) resolution is on the cards and we are very confident to have been able to create a sustainable robust framework in consultation with states,” said Energy Minister Piyush Goyal. This remains a key roadblock, and failure to resolve systemic Discom losses will stymie growth.
Stranded Assets – Excess coal fired capacity lowers utilisation Rate
In July 2015, the national average thermal power plant load factor (PLF) declined to 58.4% – the lowest in three years. This suggests there has been a significant coal-fired power plant overbuild. With electricity demand growth not as strong as expected, coal-fired power plants are at risk of being stranded from both an inability to access cheap domestic coal and from weaker than expected demand. Power at any cost is not a viable solution – affordability is a second key constraint.
This development is following the Chinese pattern where coal-fired power plants are rapidly being put at risk of becoming stranded assets, with utilisation rates in China year to date 2015 reported at a record low of only 49% as the nationwide average.
Electricity Consumption Growth of 3.1% yoy
Indian industrial production grew 4.2% in July from a year earlier, with April-August 2015 electricity production growth running at only 3.1%. With electricity system growth running at only half the reported GDP growth of 7% yoy, the need for dramatic new generation capacity additions is diminished.
Progress in Ramping Up Solar Rollout
Mercom Capital monitors the Indian solar market, and in a market update published August 2015 put Indian solar at 4,349 MW of operational PV and 209 MW of CSP, for a total of over 4.5 GW. An additional pipeline of over 7GW is underway, a massive acceleration on the 1GW pa of solar installs seen in the last two years.
Bridge to India reports tenders for project development and EPC issued by Solar Energy Corporation of India (SECI) and National Thermal Power Corporation (NTPC) add up to 3.9GW, and several new tenders are expected. SECI is already developing a 750MW project in Madhya Pradesh. Projects under development, recently concluded allocations and ongoing allocations at the state level add up to 7GW. The new allocations from this are spread across the states of Punjab (500 MW), Haryana (150 MW), Bihar (150 MW), Tamil Nadu (1,240 MW), Telangana (2,000 MW), Madhya Pradesh (300 MW), Andhra Pradesh (500MW) and Jharkhand (2,000 MW).
Bridge to India reports a 500MW tender in Andhra Pradesh in September 2015 received bids totalling 5.5GW, a tenfold oversubscription. Tender results are to be announced October 2015, with suggestions that tariffs below Rs5/kWh have been submitted. Prominent new entrants into the Indian solar sector with this tender included SoftBank, Trina Solar, Enel, Energon, Solar Arise, Suzlon and Greenko. The depth of global corporate interest is growing with each month.
September 2015 saw another major new solar step forward, with the Adani Group and Jindal Steel & Power Limited (JSPL) sending proposals to the Jharkhand Renewable Energy Development Agency to set up solar power capacity of a combined 2 GW. This is JSPL’s first major entry into the Indian solar sector, and for Adani, this represents the latest of seven major solar initiatives in India announced just in 2015 to-date, totalling new capex of US$16bn. If these proposals progress, it would represent a manyfold expansion of solar relative to Jharkhand’s existing total of only 16MW of solar installed.
Encouraging Microgrids
“We are creating a framework that whenever the grid reaches there, the off grid guy can supply that power like net metering into the grid, so we are creating that framework to encourage people to go off grid,” said Mr. Goyal. Incentivising offgrid, decentralised renewable solutions is an effective, lowest cost solution to energy poverty. Despite certain coal industry claims, expensive imported coal isn’t seen as a solution.
Encouraging Energy Efficiency
In September 2015 the Energy Minister also said that government plans to bring down the cost of each LED bulb to Rs.44 from the current level of Rs.74 through competitive bidding. This further builds on an 80-90% cost reduction sourcing program for LED already achieved over the last year. Goyal has quantified the electricity savings from an LED phase in program at 100TWh or well over US$2bn annually.
Hydro Projects Restarted
Energy Minister Goyal also said: “If you go back in history for the last five years, the entire hydel industry has come to a standstill in India. We’re going to revive it. People have lost interest about investing in hydro. I want to reignite that interest.” 46GW of hydroelectricity is strategically significant as it boosts economic expansion and employment in India’s northeast, Goyal added. It also brings strength to the electricity generation sector, diversifying the overreliance on coal while balancing renewable energy production. The first target is to resolve the years-long delay in the US$1.4bn, 1.2GW Teesta-III project in northeastern Sikkim state that is 90% complete. Goyal said his next objective is to speed up NHPC’s 2GW Subansiri hydroelectricity project spanning across Assam and Arunachal Pradesh states.
Onshore Wind
While much of the press focus in India is currently on solar, India already operates the fourth largest global wind farm fleet of 24GW, behind only China, America and Germany. Goyal has a stated target to lift this to 60GW by 2021/22, and post the equity recapitalisation of Suzlon Energy in May 2015, the wind sector is once again looking re-energised.
In September 2015 the China Light and Power Group of Hong Kong (CLP India) announced a new Rs6bn (US$90m) 9.15% pa, 3-5 year tenor green bond issue to assist financing of its committed new wind projects of over 1,000 MW across six states. CLP India already has the largest wind fleet in India, with commissioned wind energy capacity of 724 MW.
Repowering Onshore Wind
In order to overcome site availability constraints, Energy Minister Goyal is looking at repowering existing wind farms, replacing the old 0.2-0.3MW turbines with modern turbines of 2-3MW capacity each – giving a tenfold lift in output from existing wind farms.
Offshore Wind Framework
In September 2015 Prime Minister Narendra Modi’s government adopted a new policy for India’s offshore wind industry. The Ministry of New and Renewable Energy is now authorised to start allocating blocks offshore for wind developments. This represents another step forward in India’s pursuit of a targeted 175 GW of renewable energy by 2022, although IEEFA expects offshore wind to only make a material contribution next decade.
Reverse tender for stranded gas fired capacity
In September 2015 the Indian Government announced its second reverse tender auction for subsidised gas supply to stranded gas-fired power generation capacity for the six months to March 2016 at a maximum electricity price of Rs4.70/kWh. The first auction for the June-to-Sept’2015 period successfully revived 10,270MW of previously stranded gas capacity to provide gas-fired electricity generation for 30% of time, sufficient to provide peak load management to help grid stability at a minimal incremental system cost.
The entry of a wide range of global energy firms into the Indian renewables sector is rapidly mobilising financial capital and providing substance to the grand transformation vision announced late in 2014. While the electricity sector challenges remain extreme, Energy Minister Goyal continues to achieve wins on a range of new initiatives. The 5% yoy decline in coal imports in July-August 2015 hits at a key turning point. Two months isn’t a trend, but momentum is building.
Tim Buckley, Director Energy Finance Studies, Australasia at IEEFA
