Also, there’s uncertainty over coal availability and distribution companies are shying away from announcing power purchase agreements. That could put a dent in the country’s plans for large thermal units.
On the other hand, solar power installation and generation costs are expected to fall.
“With solar turning out to be a viable option, ultra-mega power projects might not attract enough interest from private players” said Salil Garg, director, India Ratings & Research. “Banks are reluctant to lend for thermal power projects while most private players have shelved new project plans. They are diverting money into solar power projects. Some of the developers, who were relatively new to the sector and are stuck with existing projects, are trying to exit on an as-is-where-is basis or are considering completing them and then exiting.”
Solar power tariffs, which hit a low of 4.34 per unit at a recent project auction, are likely to fall further with a reduction in capital costs and access to competitive funding, according to India Ratings.
Currently, a megawatt of thermal power requires an investment of 6.3 – 6.5 crore against 5.5 – 5.7 crore for solar. A new coal-fired unit running at 60% capacity utilisation generates power at 4-4.5 per unit while the lowest tariff quoted by solar companies is 4.34 per unit.
The average thermal power tariff at NTPC, is around 3.15 per unit while the actual cost of generation ranges from 2.5 per unit for old plants to 4.50 for new ones. NTPC too is setting up solar power plants.
The Ministry of Environment and Forests (MoEF) recently tightened emission norms for thermal plants, requiring them to retrofit equipment that could cost 50,000 to 1 Crore per MW, depending on to their age and efficiency.
“MoEF’s new norms, desirable as they may be, will increase costs of thermal power generation, running at 60% capacity utilisation, by at least 60 paise per unit” said Anish De. “The coal cess, which was doubled in the recent budget, will raise power prices at least by another 15 paise per unit.”
Water availability is also expected to add to the challenges facing thermal power. Solar power won’t be affected by this, experts said.
“Solar prices have been falling on reduced prices of solar photovoltaic cells, which comprise 70% of cost of installations, lower return expectations by investors and lower capital costs for large business houses” said Garg of India Ratings.
Girish Kadam, vice president, corporate sector ratings, ICRA, said: “Solar costs may fall further and the sector may witness faster capacity addition in the near future. However, we assume solar generation mix could touch 8% by 2022 in line with renewable power obligation requirement of the government. Nevertheless, thermal power is needed as base load that will offer stability to the grid since solar power isn’t available all day.”