Bad news for coal: India lands world’s largest, super cheap solar and storage tender

India has clocked a major renewable energy milestone – and driven another nail into the coffin for coal – after wrapping up what is being described as the world’s largest “firmed renewables” auction, and locking in the some of the world’s cheapest prices for solar energy and storage.

The tender, launched by the Solar Energy Corporation of India (SECI) in August 2019, called for 1.2 GW of grid-connected power generation capacity with a guaranteed peak power supply, a first for India.

The key goal was to procure assured supply of 600MW of clean power for six hours daily during peak demand hours – 5.30-9.30am and 5.30pm-12.30am – on a day-ahead, on-demand basis.

Not only was the round oversubscribed, attracting bids for 1.62GW of capacity overall, but it was highly competitive, with big hitter Greenko securing 900MW of pumped hydro storage clean power capacity for a weighted average tariff of Rs4.04/kWh ($A0.085/kWh) and a quoted peak tariff of Rs6.12/kWh ($A0.13/kWh).

Goldman Sachs-backed ReNew Power secured the remaining 300MW in battery storage capacity, with a weighted average bid of Rs4.30 ($A0.090/kWh) and quoted peak price of Rs6.85, ($A0.14/kWh) – a world record for renewables-plus-battery storage capacity according to PV Magazine.

For the renewable energy supplied during off-peak hours, SECI will pay a pre-specified tariff of Rs2.88/KWh. The tariffs granted will be paid over a 25-year period.

All told, the successful bids amount to at least 3GWh of energy storage capacity – pumped hydro and battery storage – plus associated clean energy generation assets. And they sound a warning for coal.

Kashish Shah, a research analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said the beauty of this auction was that the tenderers had offered time-of-use pricing.

“This is a first (for India) where there is battery storage incorporated, or any form of storage,” Shah told RenewEconomy on Tuesday.

“And it goes to show that when you provide this kind of time-of-day pricing and financial incentive, it attracts some of the top renewable energy players,” he added.

And Shah says the timing of the tender is just right for India, which is hovering close to the 100GW mark for installed renewable capacity, after which point storage will become increasingly vital for any new projects coming online.

Solar energy advocates in India, meanwhile, are celebrating the results of the tender as a death knell for coal-fired electricity generation.

“With this, thermal power in India has become priced out,” said Pranav R Mehta, chairman of the National Solar Energy Federation of India.

“The most recent thermal power tenders in the country have yielded levelized tariffs in the range of Rs5-7/kWh ($0.0694-0.0972).

“The peak tariff under this SECI tender is highly competitive vis-à-vis the recent peak tariffs in international markets like [the] USA (Rs8-9/kWh or $0.1111-0.125).”

Shah agrees that this makes the outlook more and more grim for India’s coal power sector, and in particular for exporters of thermal coal – like Australia – that are hedging their best on growing demand for the fossil fuel generation in the sub-continent.

“in terms of the thermal coal industry, India’s (electricity) demand has been flat in 2019-2020 and thermal power production is down, whereas renewable energy generation has gone up,” he told RE.

And as India works towards a renewable energy target of 450GW by FY2029/30, IEEFA says it expects only 30GW of net new thermal additions in the coming decade.

“Any incremental demand is being satisfied by renewable energy options.”

Shah says there is already a “massive stranded asset problem” in India’s thermal coal pipeline, and with thermal contracts coming in at 5 and 6 rupees, the situation isn’t likely to improve any time soon.

“India will look to reduce (coal) imports, boost domestic coal production, and then to transition from a thermal based electricity sector to one that is renewable energy based.

“This is only possible when you have a firmed renewables.”