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Saturday, June 30, 2018

Carbon bubble bursts in India

I talked here about how in India electricity from a new solar farm is now cheaper than the cost of electricity from a new coal power station. 

In an article in Asia Times, Tim Buckley of IEEFA explains how coal in India has gone from ginormous to ... not much:

In India, which until recently had the world’s second-largest coal pipeline, two seismic events have signalled the contrary to be true.

NTPC, the largest owner and developer of domestic coal plants in India, shelved its 4GW Pudimadaka Ultra-Mega Power Plant, due to be built in the state of Andhra Pradesh.
“Redesigning the project after acquiring 1,200 acres from the APIIC was found unviable… we have decided not to go ahead with the project,” an NTPC official told The Hindu newspaper.

This decision to cancel the largest new coal-fired power station planned in India is another step in the country’s remarkable Indian energy transition.

Since the start of 2010, as a result of shelved and cancelled projects, India’s coal plant pipeline has shrunk by a staggering 547GW. To give this some perspective, that is almost three times the total installed capacity of Germany.

Today, 88GW – or rather 84GW – are still reported to be “progressing” through approval processes

Though given current trends, this more accurately translates as “yet to be formally cancelled or put into administration.”

In fact, of the remaining pipeline, the Institute for Energy Economics and Financial Analysis (IEEFA) estimates no more than 10-20GW might actually see the light of day. That means more than 84% of India’s 2010 coal pipeline will have been cancelled.

What’s more, if India’s 2018 National Energy Plan forecast of 48GW of end-of-life coal plant closures by 2027 occurs, India is rapidly approaching peak thermal coal.

The coal industry will no doubt question this logic, but underlying it are numbers than can’t be disputed.

New imported coal-fired power costs between Rs5-6/kWh (US$75-90/MWh). Domestic coal is generally Rs3-4/kWh (US$45-60/MWh), depending upon if it is mine-mouth or 1,000km away from the coal mine. At the record low May 2017 auction, solar was priced at Rs2.44/kWh (US$38/MWh).

New solar costs less than half the price of new imported coal, and while the coal price has doubled over the past two years, IEEFA forecasts the price of solar to drop by double digits every year.

Last week Bloomberg New Energy Finance released its new energy outlook 2018 estimating the cost (LCOE) of wind and solar in India is down to US$40/MWh. It would not surprise us if that is revised down another 25% within the next year.

This brings us to the second seismic piece of news. On June 21, Indian New and Renewable Energy Minister RK Singh announced a 100GW solar tender, with an emphasis on battery storage and domestic solar manufacturing.

It follows on the heels of plans for 8-10GW of annual onshore wind installations, plus an ambitious 30GW of offshore wind by 2030 and the launch of an additional 10GW solar tender which will take place in July 2018: the biggest single solar reverse auction in history!

[Read more here]

The consequences for carbon asset prices and debt are now becoming obvious.

Deep in the jungles of eastern India lies an abandoned power plant, a warning symbol for the $38 billion of additional bad loans which are about to engulf the country’s banks.

Like many of India’s power stations, the Jharkhand project had all the markings of success when a group led by State Bank of India lent about $700 million five years ago to build it. There’s abundant coal and water in the area, a rail track was set to run through the premises, and its promise of 1,080 megawatts of electricity was alluring in a country that faces persistent power shortages and blackouts.

Yet today it stands deserted and Indian banks have had to write off three quarters of their loans, after selling the operating company to a specialist in distressed debt. Haircuts of that magnitude are now expected across the whole power sector in India, according to Bank of America Merrill Lynch, suggesting local banks face a new $38 billion wave of losses. That would be more than four times the $9 billion they’ve written off from a previous tide of bad loans from India’s troubled steel sector. 

[Read more here]

This has all happened in 8 years.  Coal has gone from a sure thing a massive liability.  The lessons for other SE Asian countries, and for banks and investors, are obvious.

Source: Why India’s solar sector has turned into a $100 billion investment magnet

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