India’s latest electricity sector report provides some clear insights into the progress on the electricity sector transformation (attached).
Thermal power plant utilisation rates are collapsing to below 50%, the growth rate in new builds has halved, and renewable power generation is up 26% year-on-year (yoy), six times faster than conventional power generation growth (at 4.5% yoy). India targets 16GW in 2016 rising to 22GW pa by 2019 of renewable energy installs.
- India’s rate of thermal power installation has halved in the first seven months of 2016/17 (7M2016/17) to just 3.6GW – hardly the wave of new coal fired power plants that coal spruikers have been talking about. This is consistent with Energy Minister Piyush Goyal’s call for new coal fired power plant builders to postpone new developments simply because they aren’t needed. Goyal is also looking to close end of life coal fired power plants, given these are the most polluting.
- The average private thermal power plant operated in India for just 48.9% of the time in the 7M2016/17 (206.1GWh produced from 82.5GW of thermal capacity). India reports the average plant load factor (PLF) was 59%, down 400 basis points from 63% in the previous corresponding period (pcp), but utilisation rates were even lower, down at new record lows. Interestingly, this mirrors the trend evident now in China where stranded coal fired power generation capacity now exceeds 200GW and the government has called a formal coal plant build moratorium.
- India’s economy is reported to be seeing +7-8% GDP growth, yet at face value this seems inconsistent with the last four months to October 2016 which saw electricity supply grow at just +1.5% yoy. However, examining the numbers shows the devil is in the detail. In the 7M2016/17, conventional power generation was 684TWh, +4.5% yoy. But renewables (excluding hydro) generation is +26.4% yoy to 55TWh, six times faster growth (renewables are now 8% of all generation. 19% including hydro). So the overall electricity generation growth is +5.9% yoy. And with transmission & distribution losses declining, consumption is growing more like +7% yoy year to date, in line with +7-8% GDP growth.
India’s electricity system, being 75% reliant on coal fired power generation, is built on a wall of fossil fuel subsidies from the government. The last reported average cost of supply is Rs5.15/kWh (including T&D losses of 24.6% in 2014/15), and the average Indian retail selling price is Rs4.00/kWh, meaning every unit of electricity sold in India carries a DISCOM subsidy of 29% on average.
The really poor people of India aren’t grid connected. Subsidising coal for the middle class is hardly a solution for energy poverty. Goyal is working hard to remove all the subsidies for electricity, so as to level the playing field – as soon as this is done, new renewables at Rs4-5/kWh are clearly below grid parity, and way below the cost of new imported coal fired power generation which sits at Rs6-7/kWh. Removing grid subsidies will also make distributed solar more cost competitive, underpinning Goyal’s 40GW of rooftop solar target.
- The Ministry of New and Renewable Energy targets 16 GW of new renewable energy in 2016/17, rising to 20GW in 2017/18 and 22GW in 2018/19. While IEEFA views these as ambitious stretch targets; we note the this means renewables capacity growth will be double to triple the expected install rate of new thermal power across India for the rest of this decade. The target of 225GW of renewables by 2021/22 rising to 350GW by 2030 shows global leadership in the transformation of India’s electricity system.
- Goyal continues to forecast coal imports into India to decline by -20% yoy in 2016/17,  and the logic behind this forecast is unpinned by the recent doubling of traded thermal coal prices to the current US$96/t (Newcastle 6,000kcal benchmark), literally pricing imports out of the market for the world’s #1 thermal coal importer. It is little surprise to us that the forward price of thermal coal is down 20% month on month to US$65/t, on the back of China reducing near term domestic coal supply impediments.
- With Coal India Ltd having curtailed production growth entirely over 2016/17 (-0.1% yoy to 274Mt in the April-October 2016 period) in order to cut excess coal stockpiles, IEEFA expects a pickup in both China and Indian coal production in the next 3-6 months, once again putting the traded coal market into an oversupplied position just as export mines ramp up production.
Tim Buckley is director Energy Finance Studies Australasia, IEEFA