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Tamil Nadu is India’s model for low-cost renewables

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IEEFA

New modelling by the Institute for Energy Economics and Financial Analysis (IEEFA) finds the Indian state of Tamil Nadu capable of doubling its wind energy capacity by 2027 and increasing its solar capacity six-fold.

In a report published this week—“Electricity Transformation in India: A Case Study of Tamil Nadu”—IEEFA sees Tamil Nadu wind-generation capacity reaching 15 gigawatts (GW) of capacity in less than 10 years and solar totaling 13.8 GW.

“The upshot is cheaper electricity for customers and a return to profitability for TANGEDCO (Tamil Nadu Generation and Distribution Corporation),” said Tim Buckley, IEEFA’s director of energy finance studies, Australasia, and lead author of the report.

“IEEFA bases its forecast on a clear tipping point achieved in 2017: new renewable investments are being underwritten at tariffs of Rs2.43-3.00/kilowatt-hour (kWh), below the average tariff paid to NTPC, India’s largely central government-owned power generator, for thermal power in 2016/17 of Rs3.20/kWh,” Buckley said.

Buckley noted that Tamil Nadu accounted for almost one-fifth (18.5%) of India’s total renewable energy generation in 2016/17.  Tamil Nadu’s population is approaching 72 million; India’s total population is 1.3 billion.

The report finds that Tamil Nadu already operates the most diversified electricity generation fleet in India, with renewables representing 35% of installed capacity as of March 2017, nuclear 8%, and hydroelectricity 7%. Coal-fired power capacity represents 45% or 13.4 GW.

The report sounds a warning, however, on how Tamil Nadu is building 22,500 MW of expensive coal-fired power plants—almost double the entire existing coal-fired fleet in the state—in spite of the favorable investment advantages and lower tariff costs for wind and solar.

“Building more non-pithead coal-based plants at a time when existing plants are being used only 62% of the time as opposed to the optimal 80% makes no sense,” Buckley said.

“This will be borne out in time with the cancellation of many new, costly coal-based plant proposals such as the 4,000 MW Cheyyur UMPP.”

The report concludes that Tamil Nadu would be better served by a more diversified electricity-generation mix, which is well within reach if certain sensible policy and investment programs are pursued aggressively.

  • Low-cost solar capital expansions.
  • A major repowering of Tamil Nadu’s wind projects.
  • A concerted improvement in energy efficiency initiatives combined with a crackdown on reduced transmission and distribution (T&D) losses.

“Such a program would allow Tamil Nadu’s power utility to turn profitable without undue impacts on consumers,” Buckley said.

“Despite being a world leader in wind energy, Tamil Nadu’s wind farms have aging and outdated technology. Just upgrading or repowering existing turbines  could double the state’s wind-energy capacity.”

Additional detail from the report:

  • IEEFA expects offshore wind to emerge as a new, cost-competitive source of electricity generation.
  • Investments in new coal and nuclear based projects could cause further financial distress to the firms involved.
  • Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) reported a staggering loss of Rs 13,985 crore (US$2.1bn) in 2013/14. Subsequent reforms under UDAY scheme have helped TANGEDCO not only reduce its losses, to 3,783 crore (US$582m) in 2016/17, but lower is deficit on energy availability from 12.3% in 2011/12 to a record low 0.6% in 2015/16. IEEFA expects a break-even result next financial year and expects TANGEDCO to move to net profit for the first time in two decades.

“Excessive debt, inefficient T&D, high priced power purchase agreements and underfunded agricultural sector subsidies have led to heavy, reoccurring losses for TANGEDCO,” Buckley said.

“However, the rapid reduction in the cost of solar and wind (with renewable tariffs falling almost 50% since the start of 2016) offers an opportunity for power utilities to turn profitable”

“Tamil Nadu is uniquely placed to lead in this transformation by ensuring economical, time-bound capacity additions.

Other than as replacement of end-of-life coal capacity, Tamil Nadu does not need any new thermal power capacity additions over the next 10 years.

Additional demand growth is best met with various modern solar and wind technologies (including rooftop solar, concentrated solar thermal, floating solar, solar irrigation, onshore wind repowering and offshore wind).

“A relatively radical transformation of Tamil Nadu’s electricity sector is now the economically sensible strategic move.

Tamil Nadu can leverage its already leading renewable energy base to drive new investment and employment opportunities in high-tech industries of the future.

This would also accelerate new electricity exports inter-state generating a much needed, profitable revenue source for TANGEDCO.”

Source: IEEFA. Reproduced with permission.  

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  • Calamity_Jean

    I don’t understand why the article says this:

    “Other than as replacement of end-of-life coal capacity, Tamil Nadu does not need any new thermal power capacity additions over the next 10 years.”

    Why does Tamil Nadu need ANY new coal power at all, even to replace old, worn-out coal plants? Wouldn’t it be cheaper, cleaner and faster to replace old dying coal power with wind and solar?

    • Tim Buckley

      Interesting point. It is worth remembering that unlike Australia, Tamil Nadu is seeing economic growth of 7% annually, i.e. a doubling of economic output each decade. This means electricity demand is growing 5-6% pa. TN needs to balance a move to sustainable electricity system with it’s need to maintain growth and grid stability. TN is already seeing pressure at times from excessive variable renewable generation, so reliance on lignite power will remain for some time yet until DRM, PHS, distributed battery solutions, EVs and national / international grid connectivity capacity is all expanded materially. India is already doing its unfair share of transition – time for Australia to do more before we push India to go even faster than they already are! Cheers Tim

      • david_fta

        It remains possible that TN won’t build any new coalfired power, but may instead rely on ever-advancing improvements in storage to match intermittent generation with variable demand.

        Giles Parkinson discusses this at http://reneweconomy.com.au/solar-wind-hydro-power-world-lower-cost-37584/, and it’s also described in a news item on Science Daily: https://www.sciencedaily.com/releases/2018/02/180208141214.htm) .

        • Tim Buckley

          No argument from me, I agree this is entirely feasible from an engineering perspective. But TN have US$22bn of thermal power plants in the pipeline- so this does require a radical shift of thinking beyond what they have already done. This shift is now the economically sensible thing to do, not to under-sell the massive water scarcity pressures also undermining yet more coal plants. For the planet, let’s hope TN continues to show global leadership and do what Giles shows is entirely logical and financially sensible.