Despite the cancellation of a recent offer to buy thermal power at Rs 4.41, the price discovered at the previous option, Rs 4.24 points to the increasing pressure the government is likely to face for the yardsticks it uses to measure renewable power cost.
In news that will cause a lot of heartburn among solar developers, news agency PTI has reported the cancellation of a 2500 MW auction to source power for a three year period. The bids were being conducted by state agency Power finance Corporation’s Consultancy arm. The amount being offered? Rs 4.41 per unit.
The fact that the bid had to be cancelled due to lack of interest from state power utilities should be no consolation, as the same utilities are very likely to accept a price closer to the Rs 4.20 range, a price that is the stuff of dreams for utility scale renewable developers now.
It doesn’t stop there. Designed to bail out stranded thermal plants stuck without fuel agreements in the absense of a PPA, the auction was hoping to help these plants get PPA’s in place on the basis of their deals here at the bid price.
While this scheme, called Pilot Scheme -2 stays in abeyance, the previous version of the Scheme called Pilot scheme 1, which was also aggregated by the NHPC had discovered a price of Rs 4.24, for which power purchase agreements for an aggregate of 1900 MW were signed in October, 2019.
What these numbers show us is that the government will always be guided by factors well beyond just the growth and quality of the renewables sector, or even its green commitments, when it comes to energy. With massive investments in thermal energy still stuck, and the ready availability of coal, the combination will continue to get preference as a more politically feasible option for some time. With the threat of defaults in an already stretched banking system, readers can be sure that the thermal power producers, will be in no hurry to return their loans, focusing instead on negotiating longer term ‘protection’ in the form of PPA’s and fuel linkages.
In yet another painful reminder for solar developers, the benefits of lower prices or a lower interest rate regime are unlikely to be demanded of thermal power developers, as almost all their costs are sunk costs today. Keep in mind that Andhra Pradesh, among the states that has happily brought thermal power at over Rs 4.42 from many generators, is in the middle of a messy fight to demand a solar cost of Rs 2.44 from solar power developers who have signed PPA’s that are closer to the price being offered to thermal power. While it is no one’s case that thermal power doesn’t have a critical role to play for the medium term, the fact that renewables has been squeezed so hard on costs and price, at a huge cost to long term quality is something the government needs to consider.
It is interesting to ponder that the last big thermal projects which promised power at rates comparable to today’s renewable projects, the Ultra Mega Power Projects (Tata Power’s Mundra project), have either failed to take shape or have eventually delivered power at much higher rates, blaming it on hike in fuel rates. Something that they have not only been allowed to do, but passed on to consumers. The only silver lining there? Some of the worthies involved with those projects, be it Tata Power or Adani Power, have moved on to a much greater focus on renewables now, in a sign of seeing the writing on the wall perhaps.