After a string of federal auctions, solar is suddenly the cheapest source of electricity in India. That’s darkening the outlook for the coal-fired power industry as projects struggle to find customers or face cancellation amid a glut of capacity.
“The crashing solar tariffs are creating a mental block for distribution companies and holding them back from signing long-term purchase agreements with conventional power producers,” said T. Adi Babu, chief operating officer for finance at Lanco Infratech Ltd., an Indian power producer. “A couple of years back, when people talked of solar reaching grid parity, people were skeptical. Now the solar tariffs have gone well below that. It is definitely making conventional players sit up and take notice.”
In May, the Business Standard reported that the state of Gujarat scrapped a so-called ultra-mega power project. Sujit Gulati, Gujarat’s additional chief secretary for energy and petrochemicals, didn’t respond to an email seeking comment. Uttar Pradesh ditched plans to buy long-term power supplies in favor of short-term purchases through the oversupplied spot power markets.
The solar auctions both advance Prime Minister Narendra Modi’s goal to reduce fossil-fuel pollution in a country that’s home to almost half of the world’s 30 most-polluted cities and throw into question the direction of India’s energy policy, which still envisions an expansion for coal power. For now, the government expects demand for traditional power plants will continue to rise, boosting demand for the most dirty fossil fuel.
“Coal-based capacities are facing competition, but we are not seeing them becoming irrelevant for some years to come and they will continue to serve the base-load demand,” said P.K. Pujari, secretary at the ministry of power. “The demand for thermal power is going to increase in absolute terms.”
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