Coal-fired generation has borne the brunt of the erosion of electricity demand induced by Covid-19 pandemic. In the first 33 days of this fiscal (till May 3), coal-based generation slumped 33,000 Gw hours, indicating that coal-fired generation suffered 100 per cent of the power demand loss, compared to its 71 per cent share in total generation, said a report by US-based think tank- Institute for Energy Economics & Financial Analysis (IEEFA).
A decade ago, coal-fired power plants operated at an average of 70-80 per cent of their rated capacities. However, during 2019-20, the average Plant Load Factor (PLF) tumbled to 55.5 per cent owing to a decline in power demand and increasing traction from renewable power sources.
In April 2020, coal-based generating stations could run at barely 40 per cent of the total load.
“Coal-fired power plants unable to operate at the expected utilisation rate are operationally less efficient and also have to amortise their fixed costs over a lower level of production, giving a higher than average cost of production. Financiers and promoters of coal-fired power plants clearly have to factor this in as another key financial risk giving rise to stranded assets in the thermal power sector”, the report by IEEFA reasoned.
The Covid-19 pandemic and the nationwide lockdown is proving to be worrisome for coal-fired power generation, both for existing plants and those that have been proposed, but are yet to get financing.
“Renewables get priority over coal when power demand drops given their “must run” status, which is a reflection of their zero marginal cost of production. Coal-fired generation, the high marginal cost producer, is losing out,” said Tim Buckley, director of IEEFA’s Energy Finance Studies.
The IEEFA note says that renewable energy delivered more than two thirds, or 9.39 Gigawatt (GW) of India’s new generating capacity additions in FY20, while new thermal power plants delivered 4.3 GW, net of the 2.5 GW removed due to end-of-life plant closures.
Further, coal-fired power plants today are running at half the capacity rate assumed in the Central Electricity Authority’s (CEA) modelling guidelines used to evaluate the financial and operating performance of new coal fired power plants.
The National Electricity Plan of 2018 takes into account an additional 70 GW or more of new coal-fired power plants installed by 2026-27, and the closure of another 39 GW, relative to the position as on March 31, 2020.
“That assumes some $70 billion of new investment in coal-fired power. Yet, renewable energy installs nearly doubled traditional thermal power capacity installs during 2019-20, and the pricing trends for new electricity generation entirely favour renewable energy over coal, particularly when it comes to expensive non-mine mouth or import coal-fired power proposals. Instead of backing coal, new finance is getting behind renewable energy," said Buckley.
New domestic and international finance is backing solar, with a landmark 2 GW solar tender awarded by National Hydro Power Corporation (NHPC) in April 2020 priced at a near record low of Rs 2.55 per unit (flat) for 25 years. This tender was won by leading Indian renewable energy developers, most of whom have access to global capital backers like SoftBank of Japan, EQT Infrastructure of Sweden, Temasek of Singapore, EDF and Total of France and Brookfield of Canada- who’s who of innovative global financial leaders.
Further, April 2020 also saw global private equity leader KKR enter the Indian renewable infrastructure sector, acquiring 317 MW of solar from Shapoorji Pallonji Solar Holdings.