Faced with clear stranded asset risk and difficulty in accessing capital, the country's thermal power sector is projected to witness just 3,000 megawatt (Mw) net capacity addition annually in this financial year FY19 and through FY20.
The forecast by US-based Institute for Energy Economics & Financial Analysis (IEEFA) factors in 7,000 Mw of new plants commissioned and 4,000 Mw in end of life closures.
According to the IEEFA report, the country's thermal power capacity fell 1,100 Mw in the April-October period of the current financial year. The addition of 600 MW at the Mahan Super Thermal Power Project in Madhya Pradesh (10 years in the planning) was more than offset by the closure of 1,799 Mw of capacity, principally at two other plants- 705 Mw at the Badarpur Thermal Power Station in NCT of Delhi, and 420 Mw at the Ropar Coal Power Station in Punjab.
The country's latest power sector blueprint – the National Electricity Plan of 2018 (NEP 2018) – forecasts thermal power plant closures of 4,000-5,000 Mw annually over the next five years.
The report notes NTPC as the only power producer regularly to be able to access capital for the new thermal power project (TPP) development. The Maharatna company's latest corporate presentation estimates thermal power commissioning at 4,200 Mw in FY19 and 5,200 Mw in FY20. But IEEFA notes that NTPC may be finding it difficult to justify investment in greenfield TPP developments, particularly when coupled with constraints including fuel access, the high tariffs required, and the long delays being experienced.
“Stranded assets commonly reflect a myriad of problems including outdated technologies, legal issues around land acquisition, a geographical misfit between proposed plant locations and the distance coal supplies must travel, and unviable tariffs. TPP proposals in India are generally requiring tariffs at increasingly high rates. As a result, Indian discoms or distribution companies that purchase electricity for supply to consumers – will not accept them given renewable energy tariffs are the low-cost solution”, Tim Buckley, director of energy finance studies (Australasia) and Kashish Shah, research associate, IEEFA noted in the report.
The impact of stalled projects is far-reaching. Right now, $100 billion of distressed TPP loans are clogging the Indian banking system.
India's renewable energy sector, on the contrary, is poised to be on a firm growth track despite headwinds like grid integration, 25 per cent import duty on solar modules and uncertainties pertaining to Goods and Services Tax (GST).
IEEFA expects 13,000 Mw of net renewable addition in this financial year, a marginal decline on 2017-18. But 2019-20 is looking a lot stronger with a building pipeline of 26,000 Mw in project tenders.