Fleet Financing

IEEFA Says New Coal-Fired Power Plants In India Will Become Stranded Assets

In theory, economics is a fairly simple thing. If farmer A sells 4 apples for a dollar and farmer B sells 5 for a dollar, who will you call when you need apples? Farmer B, of course. You’d be crazy to pay more than you need for apples, especially if you hope to resell them and become the Jeff Bezos of the apple world.

Now imagine that you are from India and want to provide electricity to the teeming masses. You can either build coal-fired power plants that cost more to operate, or build renewable energy resources like solar and wind farms that cost less to operate. Again, you’d be crazy to go for the more expensive option, but is that exactly what India is planning to do? Why? Because charcoal is like a religion and common sense rarely applies to theological discussions.

The Institute for Energy Economics And Financial Analysis says India is determined to build a fleet of new coal-fired power plants – 33 gigawatts (GW) currently under construction and an additional 29 GW under pre-construction. All will end up being stranded assets, says Kashish Shah, research analyst at IEEFA. “Coal-fired power simply cannot compete with the ongoing cost reductions of renewables. Solar tariffs in India are now lower than the fuel costs of most existing coal-fired power plants.

“In the past 12 months, no new coal-fired power plants have been announced, and there has been no movement in the 29 GW of pre-construction capacity. This reflects the lack of funding available for new coal-fired power plant projects, as well as the flattening growth in demand for electricity, which has affected coal the most. “

Despite these headwinds, the Central Electricity Authority still predicts that India will reach 267 GW of coal production capacity by 2030. This will require the addition of 58 GW of new net capacity, or around 6.4 GW per year. .

The IEEFA says it is “highly unlikely” that CEA’s projections will materialize, given the current financial and operational strains in the thermal power sector, which means that the coal capacity plans of the India should be overhauled urgently.

“All projections for India’s future generation mix should take into account that new coal-fired power plants are likely to become stranded assets,” Shah said. “The new capacity would only be economically viable if it replaced polluting end-of-life power plants with outdated combustion technology and locations far from coal mines.

“Even then, there would need to be sufficient flexibility from coal-fired power plants to provide electricity during peak demand periods, and hourly pricing would have to be high enough to justify the low utilization rates. during the day.”

Shah adds that without significant growth in electricity demand, installing inflexible, high-emission baseload capacity will increase the financial distress of public utilities by adding to their burden of paying fixed capacity charges. thermal power stations which are only used sparingly.

The International Energy Agency’s roadmap to achieve net zero emissions by 2050 recommends no new investment in fossil fuel supply projects, and no further final investment decisions for new power plants charcoal. IEEFA notes that private investors are reluctant to risk new capital in a sector that continues to carry between US $ 40 billion and US $ 60 billion in unproductive or stranded assets.

Only Indian state-owned Power Finance Corporation and Rural Electrification Corporation continue to tout new coal-fired power generation capabilities, but this may have more to do with politics than economics. Almost half of the 33 GW of capacity currently under construction in India is sponsored by these SOEs. The IEEFA suggests that they should “step away” from these “under construction” projects now to avoid the risk that they will remain inactive once they are completed.

“Governments, investors and utilities around the world are making a rapid transition to cheaper zero-emission household renewable energy,” Shah said. “India should take advantage of the falling cost of renewables and the growing viability of battery storage, which can provide clean grid tightening, to meet the demand for additional electricity.

“Accelerating the commissioning of renewable energy capacities is key to lowering India’s overall energy costs and supporting faster electrification of transportation and other industries. Ultra-low cost renewables would also enable the development of a green hydrogen economy to bolster India’s long-term goal of energy security. It seems to us to be basic economics.

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