Government's ambitious power capacity target may lead to huge surplus
The government's ambitious target of adding 261 gigawatt (GW) fresh capacity by 2022 may come at a price. According to experts, it will result in huge surplus, leading to dwindling capacity utilisation, stressed assets, more unpaid bank debts and a massive sectoral shakeout.
India has total installed capacity of 303 GW at present, of which 211 GW is thermal and 42 GW renewable. The addition plan will take total generation capacity to 564 GW, achieved through 100 GW of solar capacity, 75 GW of other renewable sources and 86 GW thermal.
According to Brookings India, the numbers for renewable energy, coal-fired capacity and power demand don't quite add up upon triangulation. The targeted 1,500 million tonne of coal by 2020—mostly used by the power sector—and an added 175 GW of renewable capacity by 2022 will lead to supply overcapacity, as indicated by Washington DC-based Brookings Institution.
"While renewable energy is worthy of support, one has to triangulate implications, not just on transmission network or finances, but also on alternative sources of supply. To scale sustainably, renewable energy needs not just improvements in costs but also improved frameworks for incorporating such power to the Indian grid," noted a Brookings study.
Santosh Kamath, partner & head of renewables at KPMG in India, said, "A 62 per cent plant load factor at present and exchange prices of Rs 2-3 per unit is in itself a manifestation there is surplus in the system."
"Yet over 200 million people do not have access to power and even those who have, witness several hours of power cuts. While the government is addressing network and affordability issues, which are an impediment to 24x7 power for all, it will take some time and it is expected that demand will grow only 6-7 per cent per annum."
"However, if 175 GW of capacity addition target is achieved and the 200 million get connected by power lines, demand will not rise suddenly because there are affordability issues. It will lead to further drops in capacity utilisation of thermal plants and there would be times in a day when there will be surplus. Adoption of storage technologies can mitigate some of the effects, but not completely, in this timeframe. Overall position will depend on other capacity additions as well," said Kamath.
Sabyasachi Majumdar, senior vice-president, ICRA, said, "The target of 175 GW of renewable energy capacity by 2022 appears challenging at the moment, given the trajectory of actual capacity additions and also the relatively modest energy demand growth being seen currently."
"Apart from underlying energy demand growth and financial position of utilities, which will determine offtake for renewable energy, other factors that could impact actual capacity addition would be availability of land and other execution challenges; ramp-up of transmission corridors and availability of long-term funds at reasonable rates," he said.
A Brookings study notes that renewable energy gets support by financial and non-financial means. Recently, the Cabinet approved amendments to the National Tariff Policy to push for 8 per cent of generation from solar by 2022. The approval also talks of free inter-state transmission of wind and solar.
On the other hand, these amendments ask for maximising use of existing plants to save money. At some point soon, this will lead to a disconnect