India’s renewables sector forecast witness double in the next 5 years
India’s renewables target of 175 GW capacity (100 GW of solar and 75 GW of wind) by 2022 is an ambitious endeavour. Even with significant cost declines, Wood Mackenzie expects about 76% of the target to be met by 2022 – and this would still be a noteworthy achievement.
Wood Mackenzie’s solar analyst Rishab Shrestha explains why.
“India faces a myriad of challenges in the renewables industry. The recent cancellation of auctions risks jeopardising investor confidence. Various duties on equipment and the associated uncertainty has led to a short-term uptick in solar prices,” Shrestha said.
“This leads to knock-on effect on already cash-strapped state distribution companies who are showing an unwillingness to greenlight high priced solar projects. Nonetheless, the government’s commitment and support towards renewables remain strong. The government has been swift and adaptable at responding to various industry hurdles and are helping reduce project risks. As a result, renewable prices continue to remain competitive.”
Combined wind and solar capacity have almost doubled from 2014 levels to 61 GW this year. Driving this growth is the significant cost decline that auctions continue to deliver. In the next five years, capital costs are expected to decline by 23% for wind and 31% for solar. This trend will only continue as new generation technologies replace old ones. We expect non-hydro renewables to make up 13% of power generation mix by 2023.
“Initial policy discussions on 2030 renewables target already shed a positive light on renewables. Improving grid flexibility through storage and flexible power generation will be extremely crucial in achieving high levels of renewable penetration. Economic competitiveness, technological maturity, and financially healthy off-takers will provide a solid base for renewable capacity growth to cater to electricity demand growth,” Shrestha said.
“Over the longer-term horizon of 2040, India is forecasted to increase its renewable capacity by around seven times to 384 GW. This share will be driven by diverse sub-segments which include offshore wind, hybrid projects, floating solar and distributed solar.
In the near term, coal remains to be the hot topic in India.
“We have increased India’s imports for thermal coal from 158 Mt to 164 Mt in 2018 with a further upside risk of 3-4 Mt as coal stocks at Indian power plants and Coal India Limited are at historically low levels. India’s spot market prices, for both coal and power, are expected to remain strong in the coming months as continuous industrial production growth is pushing demand, while supply remains tight,” Wood Mackenzie’s coal principal analyst Pralabh Bhargava said.
“Growth in domestic coal production and dispatches can only partially meet the growing demand for coal, which is resulting in increased reliance on imports. With a decade-low stockpile at Coal India’s mines and more than half of the plants with a supercritical level of less than seven days’ stock, the reliance on imported coal for several power plants will increase the flow of imports into India,” Bhargava said.
Until recently, the demand for imported thermal coal was driven by non-utilities, where a lack of domestic supply and the need for high-energy coal kept the segment active in the seaborne market. With the power sector increasingly relying on imports, we expect the rally in Indian imports to continue till early next year.