Solar beats coal cost: Implications | KPMG | IN

Solar beats coal cost: Implications

Solar beats coal cost: Implications

Existing power ecosystem players in India needs to re-align their growth strategy to adjust for low cost solar power

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The global energy landscape is undergoing significant changes due to various technological disruptions The early signs of this impact are already evident in India. Recent bidding(s) saw the solar power tariffs breach the INR 2.50 per kWh mark. This is a significant milestone as the solar power tariffs are now comparable to the variable costs of coal-based power in many cases (not considering the fixed costs of coal-based capacities which are sunk costs or which are needed for capacity support). Technological improvements resulting in the proliferation of low cost solar power is expected to have a far reaching and disruptive impact on the power sector value chain including coal mining, production, thermal power plant construction and the railways. This paper makes an assessment of the impact of rising solar power on the incumbent eco-system (mining companies, logistic ecosystem - Indian Railways, ports and shipping companies, capital equipment providers, and Engineering procurement and construction (EPC) companies).

Key highlights of the paper

  • India’s coal demand is likely to reach a peak for thermal power generation during the 2025-27 time frame. This has significant planning implications for the coal and logistics ecosystem
  • The strong demand surge for solar power would be driven by the relative economics; however, technical issues related to grid integration remain a concern. India doesn’t seem to be taking adequate action to address this. As per our simulation, day time Plant Load Factors (PLFs) of coal plants are expected fall to 38 per cent in a 100 GW solar power scenario by 2022. Thermal plants in India may not be ready to handle such low PLFs
  • The competition from solar is certain to lead to pressures on coal pricing as well. Coal companies will have to work urgently on efficiency measures and cost reduction
  • The wide scale deployment of solar is expected to impact the revenues of the Indian Railways as coal plants further away from coal sources are less likely to get dispatched as per the merit order
  • Various ecosystem players will need to respond to this high renewable energy scenario in different ways. The ecosystem players include equipment makers for thermal power generation, mining companies and EPC providers. New opportunities are likely to emerge in areas such as grid integration-related services, electricity storage and even electric vehicles.
     

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