Thermal power IPPs have put in bids of INR 3.26/ kWh in a 2,500 MW tender issued as part of a Ministry of Power scheme. They would supply power to DISCOMs across the country under 3-year PPAs at prices indexed to 50% of wholesale price inflation index (currently less than 3% per annum). Participating IPPs include Adani, Jindal, Essar, GMR, Jaypee, Sembcorp amongst others.
- The winning tariffs, considerably lower than in the previous two rounds, are far more attractive than tariffs in the first renewables plus storage tender;
- Surplus thermal power capacity poses grave threat to growth prospects of renewables;
- Our power demand-supply modelling suggests flatlining outlook for renewables with base case capacity addition estimate of 58 GW in the next five years;
The Ministry of Power scheme was issued in April 2018 to support struggling thermal IPPs. It aims to aggregate short-term demand from DISCOMs as they remain reluctant to enter into long-term PPAs. Previous two auctions under the scheme were not very encouraging. In the first round, PPAs were signed for only 1,900 MW at a tariff of INR 4.24/ kWh. The second round, completed in December 2019, was cancelled after DISCOMs refused to sign PPAs at the discovered tariff of INR 4.41/ kWh.
Thermal IPPs seem to have been forced into aggressive bidding in response to competition from renewables plus storage. SECI’s recently completed auction for the 1,200 MW tender for supply of peak power from renewable sources received winning bids of INR 6.12/ kWh and INR 6.85/ kWh from Greenko (900 MW) and ReNew (300 MW) respectively. Price for off-peak power is fixed at INR 2.88/ kWh.
The DISCOMs would most certainly favour 100% dispatchable and almost 40% cheaper thermal power over (at least partly infirm) renewable power. The result starkly highlights the grave threat posed by surplus thermal power capacity, estimated at between 40-50 GW, to renewable power prospects. To compound the problem, India continues to add more thermal capacity. Despite a slowdown in new plant construction, at least 16 GW of net new capacity is expected to come on line in the next five years. NTPC alone is planning to commission 9 GW thermal capacity in the next two years.
BRIDGE TO INDIA has recently concluded a modelling exercise for power demand-supply as part of a new report titled India Renewables Outlook 2024. Having modelled various scenarios for power demand growth and thermal PLFs (ranging between 52% and 61%), we believe that renewable power would flatline over the next five years. Our base case capacity addition estimate of 58 GW (11.6 GW per annum) comes with a considerable downside risk.
