28 October 2014 | BRIDGE TO INDIA
Over the past few weeks, we have been discussing the various positive and ambitious announcements of the new Indian government on the solar sector (refer blog 1, blog 2 and blog 3). Now, the government has started announcing broader coal and power sector reforms in the country. It is clear that power sector is top priority for the new government and that should be highly beneficial for the overall economy.
- Pooling of domestic and international coal to arrive at a balanced coal price could lead to an across-the-board increase in power prices by around INR 0.50/kWh
- The e-auction process for the cancelled coal blocks, might be the first step towards privatization of coal mining
- Given India’s huge power deficit and social-cum-environmental imperatives, increase in coal and thermal power output is unlikely to affect growth prospects for solar power
Let us first look at the proposal for cost pooling of Indian and international coal. Currently, most existing power plants secure their fuel supply from cheaper domestic coal but supply of domestic coal is very limited. Imported coal fired power is around 50% more expensive, affecting investment interest in new thermal power capacity in the country. Pooling of domestic and international coal to arrive at a balanced coal price could lead to an across-the-board increase in power prices by around INR 0.50/kWh (refer). The impact on commercial and industrial customers will likely be disproportionately higher. This, of course is good news for parity-driven solar projects under private PPAs.
The government has also announced that it would soon start e-auction process for the cancelled coal blocks. This might be the first step towards a privatization of coal mining. In addition, the government is working on improving infrastructure required to remove transportation bottlenecks between mines and power plants. These are both very significant and far reaching measures. While the impact may not be felt in the short term, it will make coal more easily available in the mid-to-long term. India has the fourth largest coal reserves globally. Most experts feel that these measures will boost power output and bring stability to power costs which have been increasing at double digit rates over the past few years.
The proposed measures would help bring much needed transparency and predictability to the Indian power market. BRIDGE TO INDIA believes that this will lead to higher economic growth, more spending power and even greater demand for power. Given India’s huge power deficit and social-cum-environmental imperatives, increase in coal and thermal power output is unlikely to affect growth prospects for solar power. India needs more power – both thermal and renewable and the new government is rightly pressing on all fronts.