Indian power companies spent much of the past decade rushing to build coal-fired power plants in anticipation of surging electricity demand as economic growth took off. Now, many of those projects are mired in deep financial distress and private investment in coal power has ground to a near halt.
The sector has been hit by a host of problems: many plants have struggled to secure fuel supplies, and to clinch deals to sell their power to cash-strapped state distribution companies. But the biggest driver of long-term uncertainty for the industry is one that few anticipated 10 years ago: an explosive take-off in the renewable power sector, as India joins the global push to tackle climate change by shifting towards green energy.
Soon after taking power in 2014, Prime Minister Narendra Modi’s government set a target of increasing India’s renewable energy capacity by 2022 to 175 gigawatts, equivalent to 40 percent of the country’s total power capacity at the time of the announcement. Mr Modi’s ambitions were stoked by a dramatic fall in the price of solar panels after a huge expansion of production in China, which is seeking to capitalize on the international drive to cut emissions.
This was steadily making the cost of electricity from solar plants — once far more expensive than coal power — more competitive with plants running on the dirtiest fossil fuel. In the 2017 financial year, newly added renewable energy capacity overtook new coal-fired capacity for the first time. The renewable push attracted major investors such as Japan’s SoftBank, whose consortium last year sealed a deal that stunned the industry.
It agreed to sell power from a northern Indian solar park for Rs2.44 per unit — well below the cost of coal power, which typically costs well over Rs3. This shift in the industry’s economics means that coal power — once one of the hottest prospects for Indian industrialists — is now a space where most fear to tread. “You’d have to be quite courageous to invest in coal at this point,” said Navroz Dubash of New Delhi’s Centre for Policy Research. “The speed with which the story has reversed is quite astonishing.”