Thermal energy remains as the largest source of electricity in India - Athar Shahab, Chief Executive, Nabha Power
While the power sector has increased supply, yet the sector remains financially stressed. How do we deal with this scenario?
As many as 34 financially stressed power projects with a capacity of 40 GW and bank exposure of more than 1.8 Lakh Crore are under resolution. The major reasons for financial stress are lack of coal, lack of PPAs, cost overruns due to delay in execution, disputes with discoms and non-payment of dues by discoms. For revival, all these projects need adequate quantum of coal and PPAs to run a viable operation. While Coal India has done a remarkable job of enhancing its output, it is not in a position to support the entire demand of stressed projects. Likewise, the precarious financial position of discoms comes in the way of significant increase in long-term PPAs. The recent order of CERC permitting imports in case of Coal India not being able to meet the requirements is a welcome step. The production from coal blocks allotted to various entities must be ramped up to meet the projections. Commercial mining should be allowed to augment Coal India’s output. The long-term solution to the problem is creating a free market for power – with a choice to customers to choose their source. In the short to medium term – an intermediary such as SECI should be established for the thermal sector to execute 1-3 year PPAs. Three years after implementation of UDAY scheme the discom debt has again mounted back to the old levels. There is need to reduce the ACS/ ARR gap through reduction of losses, gradual reduction of subsidies and adoption of prepaid metering. Lastly, quick resolution of problems faced by stressed assets is absolutely essential to preserve value.
Can the country afford to totally give up its reliance on thermal energy?
Thermal energy remains as the largest source of electricity in India. Coal-fired plants generate 72 per cent of India’s electricity. Despite Government’s ambitious plans in the renewable sector, reliance on thermal energy is unlikely to go down anytime soon. The NITI Ayog has projected a share of coal in energy mix at 44 per cent by 2040 – which is much higher than any other energy source. With the projected increase in electricity demand and stagnation in new base load capacity addition it is unlikely that our reliance on thermal energy will go down in the near future.
Where do you see the country standing in its goal for achieving the renewable energy target of 175 GW by 2022?
Going by the current trend the capacity target will be missed unless the new government finds some quick solutions to the issues being faced by investors in the sector. The sector after witnessing a capacity addition of 9 GW of solar in FY18 was only able to add 2.5 GW in FY19. The national RPO obligations need to be implemented in letter and spirit and must be adopted by all states. Setting up of solar parks needs to be ramped up. There is also need to curb investor unfriendly practices such as forcing developers to lower tariffs after receiving bids or cancelling tenders after reverse auction if the tariffs are above a certain threshold.
What further steps can be taken to ensure clean and affordable energy to the citizens of the country?
We have a great potential for hydro, offshore wind and nuclear power. These sources – in addition to solar and pumped storage facilities can provide significant quantum of clean energy. Affordability is directly linked to competition in the market. The heavy hand of the government in the entire chain must be substituted by market forces and subsidies must be reduced gradually for customers to get affordable power.
What are the other major issues surrounding the expansion of the renewable energy base in the country?
The key issues faced by renewable energy are huge land requirements, grid access, storage and precarious health of discoms. A typical 500 MW solar farm needs ~2250 acres of land, more than 4.5 times the requirement of a typical thermal power plant. The renewable energy intensity is location specific where providing the grid access may be costly or not feasible at times. To ensure reliability of power from renewable sources, meaningful storage capacities have to be built. In addition to this, precarious health of the discoms present the same challenges as faced by the thermal generators viz. delay in payments and contractual disputes. In the absence of storage, adoption of renewable energy means stranded thermal capacity resulting into lower thermal PLFs and in turn lower efficiency. This opportunity loss along with cost of grid access is the true cost of renewable energy, which needs to be minimized.
Do you think wind or solar energy can replace coal as a supplier of base-load power soon?
Renewable energy is dependent on weather condition and operate at low PLF (Solar: ~20% and Wind ~16%) in contrast to the thermal generators, which are designed for constant high load operations. Long-term performance of renewables is also likely to be impacted by forces of climate change. The replacement of coal as a source of base load power will depend upon the change in cost of storage technologies. Just as the solar has become affordable in a span of 7 year with tariff falling from a high of INR 17/unit in 2010 to INR 2.44/unit in 2017, a technological breakthrough in storage technologies can dramatically alter the situation in favour of solar power.
What measures need to be focused by the coming Government to chip in more participation from investors and private players (national as well international) – to make the process of development economically viable?
We need financially robust counter-parties in the government who are financially self-sufficient to inspire confidence in the private sector. With current outstanding of IPPs at 39,000 Cr and grave dependence of discoms on subsidies from state governments it is unlikely that large-scale private investment can be attracted in power generation. In fact, substantial investments made recently in solar power projects face the same risk since everything is eventually sold to state discoms with poor financial health and very little intrinsic viability.
How do we create an environment that enables entrepreneurs and markets to make decisions that create value and jobs?
India still ranks at 77 positions out of 190 countries in the ease of doing business rankings. To create value and jobs entrepreneurs need trust, support and regulatory certainty. Complexity of laws, cumbersome procedures, multiple interpretations and lack of coordination amongst various arms and agencies of the government drains entrepreneurial energy that could have been better deployed to develop world class products and services. Amendments to the land and labour laws and reduction in red-tape will definitely propel growth and attract investment. The need of the hour is to provide an environment in which entrepreneurs can take risks that they can best manage – rather than dealing with and trying to manage the risks in control of the government. A culture of innovation, enabling policy frameworks that reward genuine innovation, availability of various pools of capital to nurture develop and grow businesses at different stages of maturity are essential ingredients for entrepreneurial success. Government must also do away with the non-level playing field that operates between the public sector and the private sector in many parts of the Indian economy.
@EPC World Media