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Is the green edging out the black?

According to reports, a few noteworthy events have happened in the energy sector since the beginning of this year. First, some time in January, renewable energy capacity in India crossed the 50-GW mark, doubling in just five years. And, solar power capacity, which was hardly anything five years back, reached 10 GW. Going by capacities awarded and live tenders, this number could well double in two years.

And then, in February, in two separate capacity auctions, solar and wind tariffs fell to historic lows — ₹3.30 and ₹3.46 a kWhr, respectively. Although no one can say for sure that the tariffs that the future bids would throw up would be as low, it is not in doubt that prices of wind and solar energy have begun gravitating towards the levels discovered in February auctions. The message is clear: the era of high prices of renewable energy is over.

Two factors have hindered the growth of renewable energy. The first has been the high cost of power generated by wind and solar. This issue now appears to be tamed. The February auctions have shown that if you assure those who put up wind and solar power plants what they produce will be duly purchased and they will get their due payments without much delay, the prices will drop. Allow them the freedom to put up their plants anywhere in the country and sell their energy to any customer, called “inter-state open access”, prices will drop further. Since the country is moving in that direction, it is pretty much clear that wind and solar can compete with conventional power — mainly coal — on prices.

The second factor that has gone against renewable energy is that of ‘intermittency’. Wind turbines and solar panels can generate power only when wind blows or the sun shines — unlike a coal or gas fired power station, which will produce a steady stream of electricity for weeks on end. But with the rapid strides that storage technology is making, coupled with the grid operator’s growing ability to manage the intermittency with the use of software, the problem of fickleness of renewable energy is also coming under control. Like a tank that can catch water whenever possible and release it steadily down a pipe, a storage system can help bring in smoothness of power supply.

The problem again has been the high cost of storage. ‘Storage’ comes in many forms, ranging from water pumped into reservoirs at a height for later release, to a plethora of battery technologies such as lithium-ion and flow batteries, but globally the costs of storage have been coming down. It wouldn’t be long before large storage systems help Indian grid operators handle the on-off nature of wind and solar power. Further, software-aided smart grid management is coming into play. Very soon, the first contract for the establishment of a ‘renewable energy management centre’, will be awarded. The REMC is essentially a SCADA system designed specifically for wind and solar power, and will match the predicted supply of power with the demand elsewhere. The first REMC will come in Chennai, but soon a dozen of them will be set up across the country. Storage and smart grids together mean that the problem of intermittency of renewable energy is also won over.

Quo vadis, coal?

The big question emerging on the horizon, therefore, is this: if clean energy is both cheap and its supply smooth, what will happen to coal?

In the first 11 months of the current financial year, Indian power projects consumed 439.41 million tonnes of coal (including 60.66 million tonnes of imported coal.) The country has 124,785 MW of power plants designed to run on Indian coals and another 18,580 MW on imported. As such, coal is today India’s energy mainstay.

However, the fuel is on its way out. In (say) fifteen years, coal power plants will at best be the ‘Twelfth Man’, chipping in to bridge a shortfall whenever called for. The mainstay is very likely to comprise wind, solar and hydro power plants.

“With the emergence of renewables as an alternative source of electricity, further investments in coal-based power plants are uncertain,” said Salil Garg, a power sector expert at India Ratings and Research. Tightening of emission norms is making coal plants costlier, he said, noting that recent investments have not been remunerative for the investors.

It is not a coincidence that Tata Power Ltd., the country’s largest private sector power company, has not added one MW of coal-based capacity in the last six years. Tata Power’s CEO and Managing Director, Anil Sardana, said, very guardedly, that while the company has “not taken a vow” not to invest in coal power, one could not assume that new coal plants would be allowed to operate as long as Tata Power’s Trombay plant, which has been generating electricity for 56 years.

Campaigns against coal

Globally, environmentalists have launched a war against coal. Several funds and financial institutions (notably the investment fund of the Norwegian government) have decided not to put their money in coal-related projects, and to gradually pull out the investments already made. The Guardian newspaper is running a ‘keep-it-in-the-ground’ campaign, calling for a stop to production of coal. In Germany, green groups are onto a similar campaign, ‘Ende Gelande’ (“thus far and no further”). These movements have been strengthened by renewable energy becoming cheap and handleable.

The effect of these is becoming evident. According to a recent report of the International Energy Agency, renewable energy catered to more than half of the incremental demand for electricity in 2016. “Demand for coal fell worldwide, but the drop was particularly sharp in the U.S., where the demand was down by 11%,” the report said. Further, demand for coal fell in China in 2016, even as its economy expanded 6.7%, it said. Appetite for coal declined in Europe too, by 10% cent, though it was more natural gas than renewable energy that took coal’s space.

What does all this mean for India? The shift from coal to renewables is tectonic, disruptive. It has major implications on the long-term prospects of companies such as Coal India, BHEL and NTPC. Companies, like the Adanis’, which are planning to make long-term investments in coal mines and coal-fired power plants will be forced to re-think their plans. True, coal will be still needed in the short run for energy security, but its need will diminish. The astonishing fall in the prices of renewable energy in February may have just rung-in the beginning of the end for coal.

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