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India's rising power demand over the next two decades is driving
its decision to continue to rely on a substantial amount of
coal-fired power, but a new report suggests that the economics of
renewable generation, plus the age of India's coal fleet, could
have seen the tipping point reached for a slow, long-term decline
for coal.
India's coal-fired generation declined by 5% year on year in
2020, due to the COVID-19 pandemic, and it had declined in 2019 by
3% as well, mostly due to a struggling national economy. It is
possible that new renewable resources—not coal—could
capture that share of the market as demand rebounds in the next few
years, said Ember.
Source: Ember
Coal is quickly becoming uneconomical in India, Ember said. The
coal plant load factor (actual power production as a share of
capacity) fell to an all-time low of 53% in 2020. Additional
renewable capacity will only put more financial pressure on older,
less-efficient coal operations, Ember pointed out.
Ember's report follows the release of an energy supply and
demand forecast for India by the International Energy Agency (IEA),
which highlighted the outsized impact of India's energy needs and
emissions profile on the global effort to reduce emissions.
India's energy demand will grow more than that of any other
nation through 2040, the IEA said in its "India Energy Outlook 2021," as
its population grows and its per-capita energy use rises closer to
the global average — it is less than half the average
currently.
"To meet growth in electricity demand over the next 20 years,
India will need to add a power system the size of the European
Union to what it has now," the IEA said.
The IEA emphasized that "India's energy choices matter. They
have direct and far‐reaching effects on the lives of a growing
population, and major effects on the rest of the world through
their impact on energy markets, emissions, and flows of technology
and capital."
Rising demand, rising emissions
In its report, the IEA produced three revised forecasts for
India's energy mix through to 2040. Each is based on a predicted
increase in power demand of 35% from 2019 through 2030. Like Ember,
the IEA sees COVID-19 slowing the country's power demand, as its
2021 outlook revises growth to 2040 down from a prior 50% rise.
The Stated Policies Scenario (STEPS) has the lowest renewables
penetration (see image). STEPS projects that India will produce
nearly 60% of its power from renewables by 2040, mostly from solar
photovoltaic facilities, compared with just 4% renewables in 2019.
In that same time period, coal's share of the power mix will fall
from 70% to 34%, and it becomes increasingly concentrated in
meeting industrial needs for power, not residential demand.
Source: International Energy Agency
Rising carbon emissions
Even if those shifts in energy mix are achieved, India's carbon
dioxide (CO2) emissions would rise 50% in the next two decades,
more than any other country's.
"The increase in India's emissions is enough to offset entirely
the projected fall in emissions in Europe over the same period….
All roads to successful global clean energy transitions go via
India," the IEA said.
India has not made a pledge to reduce its total greenhouse gas
emissions, let alone to reach net zero, as have many of the
top-emitting countries. But it did pledge under the Paris Agreement
to reduce its emissions intensity (emissions per output of energy)
by 40% from 2005 to 2030.
The core of the government's clean energy commitment is to reach
installation of 175 GW of renewable power by 2022 and 450 GW by
2030. This would shift market dynamics considerably, given the
near-zero cost of power generation from installed solar and wind
facilities, compared with coal-fired power.
But the country is a long way from meeting those often-discussed
targets. "The [Central Electricity Authority of India] installed
capacity data for wind and solar shows that 2020 has been a bad
year as wind and solar grew by only 1 GW and 3 GW, respectively.
This means that India has two years to add 64 GW of new solar
capacity (about three times its growth in the last three years
combined) and 22 GW of new wind capacity (about two times its
growth in the last three years combined)," Ember said.
Government action needed
Both the IEA and Ember said that for India to reach its energy
transition goals, let alone surpass them, the government must take
the lead. This starts with meeting the aforementioned targets for
renewable power.
In addition, both organizations advise reforms that include
removing barriers to land acquisition, integrating renewable power
with the grid, and supporting small rooftop solar. The government
also can incentivize the purchase of electric vehicles and
improvements in energy efficiency in buildings.
To a significant degree, the country's leaders recognize the
situation. India's latest budget for the fiscal year April 2021
through March 2022, released this month, offers more funding for
solar installations and emphasizes that the nation's priority of
self-sufficiency will be built on improving its energy balance (see related IHS Markit article
here).
Ember said that the government also can move more aggressively
on closures of coal-fired power. Under the 13th National
Electricity Plan (NEP13), which runs through 2022, India committed
to closing all coal-fired power plants 25 years and older by 2025.
If the government follows through, that's about 46 GW of capacity
that is on track to be shuttered. But by that time, an estimated 36
GW of new coal-fired power construction could be completed,
according to NEP13, or a net reduction of only 10 GW. Ember
suggested ramping up the commitment to close any plant over 20
years old by 2025 and not constructing new plants, arguing that it
would be billions of dollars cheaper than installing flue gas
desulfurization equipment to keep the plants open.
With more renewables, India will have to manage the intermittent
nature of flows. "Battery storage is particularly well suited to
the short-run flexibility that India needs … by 2040, India has 140
GW of battery capacity in the STEPS, the largest of any country,
and close to 200 GW in the Sustainable Development Scenario," the
IEA said.
On the demand side, rapid growth in ownership of
air-conditioning units will not only create new demand, but will
change when power is needed, the IEA said. "Electricity demand for
cooling … increases six-fold by 2040, creating a major early
evening peak in electricity use," it said.
The reports also highlight problems with contracts that have
scared some investors. Cancellations and renegotiations of power
purchase agreements (PPAs) by power distribution companies are a
prime example. The distribution companies owe power generators an
estimated $18 billion, according to a report by PFC Consulting,
quoted by the IEA.
However, those distribution companies themselves face immense
financial challenges that the government could try to alleviate,
and so far reforms provided by the government to reduce their debt
load, known as the UDAY Initiative, have not been sufficient. In
the new budget, the country has allocated $42 billion over five
years to relieve the pressure on power distributors and PPAs,
Finance Minister Nirmala Sitharaman said in a speech.
In sum, many of the pieces of the puzzle for India are
available, but they need to be configured more carefully. "India
currently devotes nearly 3% of its GDP to energy investment and an
increasing share of this investment is going into clean energy.
This clearly represents an investment opportunity, but it is one
that comes at a time of increased economic uncertainty and new
risks," the IEA said.
"Under any energy pathway, India's energy system would require a
significant amount of investment…. At nearly $160 billion, annual
spending in STEPS reaches double the level of the past five years
by 2030. Half of this growth comes from power, led by grids,
renewables, and battery storage," the IEA said. But without
"contract sanctity," obtaining foreign investment on the needed
scale will be difficult.
Posted 26 February 2021 by Kevin Adler, Chief Editor
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