Coal power prices in India are on the rise, driven by the growing cost of domestic production and impending tougher environmental regulations. As renewable energy prices continue to fall, coal, which has been the workhorse of the country’s power generation, will face a bleak future, especially after 2031.
Levelized cost of electricity (LCOE) of super-critical coal power generation by coal transport distance in India
Source: Bloomberg New Energy Finance
Note: SECI is Solar Energy Corporation of India
- More than 95% of all the thermal coal produced in India is mined by state-owned coal companies, which control its price. But the average landed cost of coal at power plants increases by 240% over the notified pit-head (mine site) rate – with transport costs and taxes each making up 35% of the delivered coal price.
- Mining costs for domestic coal (average quality of 4,250kCal/kg) are expected to rise from 999 to 4,827 rupees per metric ton in 2047 in nominal terms. This is a compounded annual growth rate of 5.2% and close to the assumed inflation rate of 5.05% over this period. Along with increasing transport costs, power plants will face rising coal prices.
- In December 2015, the government announced new emissions regulations that are aimed at reducing the sulfur dioxide, nitrogen oxides and particulate matter emissions from coal plants. The rules are more stringent than those in other countries and, if implemented, would increase the cost of coal power generation by $5.5 per MWh (9%). The rules apply to both existing and new plants and were supposed to go into effect for new plants from January 1, 2017, but have since been delayed.
- Using higher quality imported coal will still require investment in emissions reduction equipment. This, coupled with high land transport costs, will limit its use to coastal power plants. Inland projects will continue to use domestic coal given its lower cost and growing supply.
- The levelized cost of electricity (LCOE) from new emissions rules compliant super-critical coal power plants is 3,890 rupees per MWh. This is higher than the recent lowest solar (2,440 rupees per MWh) and wind (3,460 rupees per MWh) auction prices, making it difficult to conceive new coal projects.
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