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Solar tariff tumble stirs coal concerns

Dumping of solar cells and modules will continue to increase in India despite the safeguard duty, say experts

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Recent developments in the renewable energy space saw a record drop in solar power tariffs and technological improvement in the energy storage solutions. This has put a question mark on the future of coal as a dominant yet polluting, depleting and costly source of energy for which citizens continue to pay a premium price.

Power generated by solar energy is set to hit a record low of Rs 2.44 per unit with a bid by ACME Solar being accepted by Solar Energy Corporation of India, the nodal agency for implementing National Solar Mission. This is about half of the bids made in 2016 in the price range of Rs 4.34 – Rs 5 a unit (kilo watt hour).

This recent bid was put in an auction for a 3gw Interstate Transmission System connected photovoltaic project. And rates are expected to fall further following a drop in module prices from China amid withdrawal of incentives by the government.

"China has recently decided to curtail its solar deployment in 2018-19. In all probability, dumping of solar cells and modules will increase in India, as absorption capacity of China will be reduced," says Rajendra Parakh, chief financial officer of Vikram Solar, a leading PV module manufacturing and EPC solutions provider for solar plants.

Fear of Chinese dumping has forced India as well as US to impose safeguard duty on Chinese cells and modules which, however, may push up tariffs temporarily.

"Many tenders have been cancelled in last 10 days and fresh bids will be invited for these tenders in order to factor in the effect of duties of safeguard. Every stakeholder in the industry is expecting tariffs to rise by 15% as a trickle-down effect of duties of safeguard," says Parakh.

The duties however are for temporary period and downward move would continue when safeguards are progressively reduced and abolished after two years.

Currently, Vikram and other solar cell and modules manufacturers located in SEZs come under the ambit of duties of safeguard. Thus, whenever these manufacturing units send their products to Domestic Tariff Area (DTA), safeguard duty will be applicable.

As a move against the safeguard duties, Vikram has approached Odisha High Court for exemption and clarification for SEZs from duties of safeguard, which will put the latter at par with manufacturing units located in DTA.

Despite such temporary hiccups, cheap availability of solar and other renewable sources of power is a reality now.

"Availability of commercially exploitable large-scale storage facilities is likely to facilitate the transition from conventional sources, primarily thermal, to alternative sources. This could result in a demand for around 450 billion kWh of battery storage by FY32," India Ratings has said in a recent research report.

The desirability of high priced thermal power at the cost of environment is now being questioned.

India Rating's analysis indicates demand for thermal power could reduce to around 290 gw of generation capacity by FY32 on a 4 gw increase in solar power capacity addition and 1 gw increase in wind power capacity addition. "Consequently, existing and upcoming thermal projects could face pressures on their returns over the longer time horizon. In this case, coal demand could peak as early as FY26," the rating agency has said.

The reality is not lost on Coal India, the near-monopoly coal producer in the country, and the largest in the world. The public sector miner is now getting rid of its publicised aim to aggressively contribute towards the nation's 1 billion-tonne production target by 2020. A moderated target is now being worked upon, Coal India has revealed in its annual report.

"As per one billion tonne document prepared in 2014-15, CIL was mandated to produce 908.01 MT by the year 2019-20... Meanwhile, consequent upon the outcome of Paris protocol on climate change and changes in the environmental paradigm and coal demand, there was an urgent need of revisiting the 1 billion programme. Ministry of coal is now in the process of finalising the Vision 2030 document for coal sector through a reputed consultant in which projection for likely demand of coal in the country is being assessed under different scenarios considering the views of Ministry of Power and Scenario emerged due to Paris protocol etc. The document is likely to be finalised shortly. In view of above, a roadmap for coal production beyond 2018-19 along with other related issues would be relooked on the basis of that demand forecast," Coal India has said.

Relying more on coal to meet our energy requirements not only harms the environment but pushes up costs as well. Coal is mostly transported via railways which charges more for such services than what is warranted to cross-subsidise passenger tariffs.

"Indian Railways business model of "overcharging" coal while keeping passenger fares low could lead to coal (and thus thermal electricity) becoming uncompetitive," says researchers Puneet Kamboj and Rahul Tongia of Brookings India in a report.

"Raising coal freight fares disproportionately compared to its distance and volume has led to higher cost of coal delivered and therefore to higher electricity costs for consumers – by approximately 10 paise/kWh across India. This is unsustainable," the report says.

Brookings' coal demand model for FY2030 forecasts a slower growth in total coal requirement in the country than the past, driven by a combination of falling electricity growth rates, improved power plant efficiencies with the advent of super-critical coal power plants and the rise of renewable energy.

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