India is bringing the coal era to an end
On Tuesday last week, Tony Abbott, Australia’s ex-prime minister, was photographed in parliament clutching a document entitled, the “Coal era is not over.”
In India, which until recently had the world’s second-largest coal pipeline, two seismic events have signalled the contrary to be true.
According to Australia’s pro-coal “Monash Forum” parliamentarians, of which Abbott is a founding member, India is ensuring a rosy future for coal exporters such as Australia due to its plans to construct 116 new power stations, or around 88GW.
Ironically, on the same day the Forum’s “fact sheets” were released, NTPC, the largest owner and developer of domestic coal plants in India, shelved its 4GW Pudimadaka Ultra-Mega Power Plant, due to be built in the state of Andhra Pradesh.
“Redesigning the project after acquiring 1,200 acres from the APIIC was found unviable… we have decided not to go ahead with the project,” an NTPC official told The Hindu newspaper.
This decision to cancel the largest new coal-fired power station planned in India is another step in the country’s remarkable Indian energy transition.
Since the start of 2010, as a result of shelved and cancelled projects, India’s coal plant pipeline has shrunk by a staggering 547GW. To give this some perspective, that is almost three times the total installed capacity of Germany.
Today, 88GW – or rather 84GW – are still reported to be “progressing” through approval processes
Though given current trends, this more accurately translates as “yet to be formally cancelled or put into administration.”
Just to take one example. Adani Power Ltd is one of the stronger private coal proponents, yet with net debts of US$7.2bn, shareholders funds of just US$130m and annual losses since 2010, its plans to build a US$2bn 1.6GW import coal plant at Godda in Jharkhand, plus another US$2bn import coal plant at Udupi, Karnataka, are neither logical nor bankable as currently configured.
84% of coal pipeline cancelled
In fact, of the remaining pipeline, the Institute for Energy Economics and Financial Analysis (IEEFA) estimates no more than 10-20GW might actually see the light of day. That means more than 84% of India’s 2010 coal pipeline will have been cancelled.
What’s more, if India’s 2018 National Energy Plan forecast of 48GW of end-of-life coal plant closures by 2027 occurs, India is rapidly approaching peak thermal coal.
The coal industry will no doubt question this logic, but underlying it are numbers than can’t be disputed.
New imported coal-fired power costs between Rs5-6/kWh (US$75-90/MWh). Domestic coal is generally Rs3-4/kWh (US$45-60/MWh), depending upon if it is mine-mouth or 1,000km away from the coal mine. At the record low May 2017 auction, solar was priced at Rs2.44/kWh (US$38/MWh).
Solar costs dropping
New solar costs less than half the price of new imported coal, and while the coal price has doubled over the past two years, IEEFA forecasts the price of solar to drop by double digits every year.
Last week Bloomberg New Energy Finance released its new energy outlook 2018 estimating the cost (LCOE) of wind and solar in India is down to US$40/MWh. It would not surprise us if that is revised down another 25% within the next year.
New solar costs less than half the price of new imported coal
NTPCs management is astute. It has played a careful waiting game with Pudimadaka, keeping the prospect alive until it became abundantly clear it was a non-starter. NTPC itself is transitioning to clean energy and with India’s coal sector already riddled with debt, it had no intention of attaching another US$5 billion fossil fuel millstone around its neck.
This brings us to the second seismic piece of news. On June 21, Indian New and Renewable Energy Minister RK Singh announced a 100GW solar tender, with an emphasis on battery storage and domestic solar manufacturing.
Huge solar tenders
It follows on the heels of plans for 8-10GW of annual onshore wind installations, plus an ambitious 30GW of offshore wind by 2030 and the launch of an additional 10GW solar tender which will take place in July 2018: the biggest single solar reverse auction in history!
There is an understandable tendency for energy analysts to take announcements of this scope with a pinch or two of salt. After all, in a search for capital, developers can emit almost as much hot air as the plants they build.
But with India already exceeding expectations in its quest to hit an ambitious 275GW by 2027 renewable energy target, credit is due. Not least since Japan’s richest man, SoftBank founder Masayoshi Son, has reportedly offered to underwrite most of the 100GW with a US$60-100bn Indian solar investment.
India’s energy sector still faces a host of challenges, not the least being grid integration, but the magnitude of the achievements to date are testament to a government with a smart, sustainable vision for the future. Largely driven by a population which continues to choke on hazardous air, India is creating a blueprint for how to deliver clean energy at a fraction of the cost of fossil fuels, using less agricultural land, far less water and with a tiny fraction of the pollution and carbon emissions.
Other countries with a coal pipeline, such as Vietnam and Japan, will have taken note.
Coal will not be gone in a decade, but the era will end sooner than many expect.