India's renewables to contribute 13% of power generation mix in five years, double the amount today

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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. 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.

"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. The 384 GW of non-hydro renewables will ultimately contribute 20% of generation share by 2040."

In the near term, coal remains to be the hot topic in India. Wood Mackenzie's coal principal analyst Pralabh Bhargava said:

"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.

"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. 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.

"Industrial production in India has grown at an average of more than 7% this year. This has led to an increase in power generation by 6% over January to August 2018, with August achieving a record high of 122 TWh of power generation. Cement production was up 16% and steel production 4% for the same period. Policies to improve the power sector have started to have an impact. At the end of the financial year in March 2018, the performance of several states in reducing technical and commercial losses as well as increasing tariffs was improving. The government is looking to de-stress some power-generating units, which may result in improvements in load factors at several plants in the short-to-medium term.

"India's rupee has depreciated against US dollar from an average of INR63.65 /US$ in January 2018 to INR73.56 /US$ during first week of October. This depreciation increased the costs of imports and only the lack of domestic coal availability is forcing companies to import. However, this has supported domestic steel production.

"In the steel sector, India's hot metal production was up 10% year-on-year for January to August. With limited domestic upside in metallurgical coal production, steelmakers relied more on imported coking coal. However, with increased utilisation of plants and higher metallurgical coal prices, most of the steel producers increased PCI rates at blast furnaces, which led to PCI imports increasing by more than 70% for January to August. We expect the overall growth trend in metallurgical coal imports to persist, as industrial production continues to grow and India looks to maintain tariffs on certain imported steel products."


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