DNA Money Edit: Coal under cloud but no sunshine for renewables too

Demand for coal is likely to see a structural slowdown on the back of the government’s push on renewable energy capacity addition, with plans to take the installed capacity to 175 gigawatt by 2022 from the current 58 gw.

The capital cost of setting up renewable energy has been going down steadily, narrowing the price gap with conventional energy. This year, solar tariff touched a low Rs 2.44 per unit at the Bhadla solar park in Rajasthan. A greater parity between conventional and renewable tariffs, coupled with the current thermal overcapacity will lead to a perceptible slowdown in fresh investments in setting up coal-based generation capacities in the next five years, believes rating firm Icra. This would trigger a prolonged period of subdued demand for thermal coal.

While global coal prices have rallied by 36% since May 2017, Icra sees this phenomenon as a temporary aberration.

Renewable energy market would continue to see strong growth over many years as India adjusts its energy mix in line with commitments under 2015 Paris agreement. However, this growth will be accompanied by key challenges, notably weak off take, credit quality and an evolving regulatory framework, as well as financing and execution risks, believes global rating firm Moody's. Adding to it, the sharp drop in the quoted tariffs seen in Bhadla may work out negatively, impacting the ability of such projects to achieve financial closure.

The government's debt restructuring of the financially weak distribution utilities under the implementation of the Ujwal Discom Assurance Yojana would likely improve their capacity to make timely payments to power generators, which might encourage them to create new capacities.