OW IS EXPENSIVE FOR INDIA-BUT AS COMPARED TO WHAT?
In the last article, we discussed that a demand-supply gap is expected to emerge towards 2030 in India as the scaling of low-cost wind, solar, hydro, nuclear, beyond a certain level would be difficult. This means that India is expected to utilize expensive energy (65+ EUR/MWh) to meet its power demand in 2030. This requirement of expensive supply can go up to 50 GW by 2030 where offshore wind projects can become a potential supply source.
It is wrong to say that OW is expensive until we put in a comparative. OW is not expensive but misplaced in pricing expectations. Today OW (being a renewable power) is expected to be available at the pricing levels of low-cost RE (EUR 30 to 40 per MWh) in the country. However, these prices are even lower than the average power procurement costs (Eur 40-45 per MWh) in the majority of the states in India. Instead, the actual competition of OW in India is coal, which no longer cheap in India.
Even in 2019, India procures nearly 33% of its power above EUR 51/MWh, given the penetration of high-cost coal on the grid and low share of cheap renewables in the generation mix. Coal power plants comprise most of the demand, contributing to nearly 77% of electricity consumption. Coal power plants are available at three price ranges: EUR 30-35/ MWh, EUR 48-53/MWh, and above EUR 70/MWh. The figure below illustrates the 2019 and 2030 merit order in India detailing the volume and pricing level of sources.
As seen in the graph, the share of expensive power increases significantly on the grid towards 2030, majorly driven by the addition of 41 GW of new coal plants coming online at EUR 65/MWh. Towards 2030, the cost of generation from coal-based plants is expected to increase because of the escalating cost of coal extraction from domestic sources and the increased equipment costs needed to meet environmental norms. Imported coal power- plant generation is also expected to be in the same price range (significantly lower than the current cost of generation which is EUR 90/MWh), due to the decline in the landed price of imported Australian coal. At the same time, nearly 32 GW of old coal available at EUR 30-53/MWh gets retired, impacting the share of high-priced coal in the total mix.
Much contrary to the trajectory of coal. Offshore wind costs have followed a steep decline curve in the past and the prices recorded in 2019, were as low as EUR 45 per MWh in Europe. The technology is expected to undergo another 10-20% LCoE decline in the next decade, driven by technology improvement and economies of scale.
When stacking up of all available resources as per respective restriction and pricing points a gap emerges to meet the demand in 2030. The supply is expected to add up to 2,169 TWh against a power demand of 2,375 TWh, which translates to nearly 45-50 GW in terms of capacity (@35-40% CUF). Hence, the supply needed to meet the demand can come from sources in the price range of EUR 65/MWh, i.e. from new coal or alternatives like OW.
By the pricing logic, OW can comfortably fit into the India energy mix for 2030. To reiterate, when we put in a relative construct of its competitiveness as compared to coal, OW is not expensive.
However, the argument requires the Indian government to create a fostering environment for supply chain set-up, transparent approval process and long-term volume visibility. In parallel, market participants must instil confidence in the government’s planning by committing to a realistic price trajectory by leveraging global expertise and local resources.
In the next article of the series, we discuss what can players do today to set course towards their OW India journey for the next decade. On June 11, we are doing a briefer video on the report- “Breaking the catch-22 in Indian OW”, watch this space for the video.
Photo Credit: Vattenfall Kriegers Flak Offshore Wind Farm