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Cheaper solar in India prompts rethink for more coal projects

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India's coal-power plant developers are growing more pessimistic about their projects after a plunge in the cost of electricity from solar panels improved the economics of renewable energy.

[NEW DELHI] India's coal-power plant developers are growing more pessimistic about their projects after a plunge in the cost of electricity from solar panels improved the economics of renewable energy.

After a string of federal auctions, solar is suddenly the cheapest source of electricity in India. That's darkening the outlook for the coal-fired power industry as projects struggle to find customers or face cancellation amid a glut of capacity.

"The crashing solar tariffs are creating a mental block for distribution companies and holding them back from signing long-term purchase agreements with conventional power producers," said T. Adi Babu, chief operating officer for finance at Lanco Infratech Ltd, an Indian power producer. "A couple of years back, when people talked of solar reaching grid parity, people were skeptical. Now the solar tariffs have gone well below that. It is definitely making conventional players sit up and take notice." In May, the Business Standard reported that the state of Gujarat scrapped a so-called ultra-mega power project. Sujit Gulati, Gujarat's additional chief secretary for energy and petrochemicals, didn't respond to an email seeking comment. Uttar Pradesh ditched plans to buy long-term power supplies in favor of short-term purchases through the oversupplied spot power markets.

The solar auctions both advance Prime Minister Narendra Modi's goal to reduce fossil-fuel pollution in a country that's home to almost half of the world's 30 most-polluted cities and throw into question the direction of India's energy policy, which still envisions an expansion for coal power. For now, the government expects demand for traditional power plants will continue to rise, boosting demand for the most dirty fossil fuel.

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"Coal-based capacities are facing competition, but we are not seeing them becoming irrelevant for some years to come and they will continue to serve the base-load demand," said PK Pujari, secretary at the ministry of power. "The demand for thermal power is going to increase in absolute terms." Even so, evidence of a shift away from coal is gathering by the day.

State-run NTPC Ltd, India's largest power producer, along with RattanIndia Power Ltd are considering installing solar panels over land initially intended for thermal projects.

NTPC said in February it's aiming to have 30 per cent of its capacity come from non-fossil fuel by 2032 The Indian subsidiary of Hong Kong-listed CLP Holdings Ltd, which owns both coal and renewable projects, is debating whether to participate in another round of conventional projects. "A transition from coal to solar is a generic direction that all utilities are taking. We are an early mover into the renewables space so our journey continues," Mahesh Makhija, business-development director for renewables, said in a phone interview.

The government of the sunny state of Rajasthan expects more conventional power to be replaced by clean energy as higher renewable purchase targets are fulfilled. "At the rate the renewable power tariffs are decreasing, the time is not far when renewable power will start replacing costlier conventional power," Sanjay Malhotra, principal secretary for energy in the Rajasthan government, said by phone.

Solar is now as much as 50 per cent cheaper than new coal power, according to solar research firm Bridge to India.

"That's why we have seen many new coal power tenders being suspended or canceled in the last three months," said Vinay Rustagi, managing director at Bridge to India.

Last month, companies including SoftBank Group Corp of Japan and India's Bharti Enterprises Pvt offered to supply solar electricity for 2.44 rupees (5 Singapore cents) a kilowatt-hour, a price competitive with market rates and with power from coal plants.

The price is within striking distance of the lowest recorded bids for solar in the United Arab Emirates and Chile, according to Bloomberg New Energy Finance.