India’s levelised cost for Round-the-Clock (RTC) renewable energy is currently 27 per cent lower than that of China, on account of its higher solar irradiation and a fully integrated national transmission grid which allows utilisation of most optimal sites without evacuation constraints, as per a new report.
The report by Goldman Sachs “India Clean Energy: Balancing Growth with Decarbonisation” said there is an economic case for renewable energy transition in India for certain use cases, including 400 GW economics-supported RE capacity addition, versus being mostly driven by government subsidies and incentives elsewhere.
This can potentially enable superior returns for developers. “While old pithead coal plants continue to lead the cost curve for reliable power supply, we estimate PSP backed RTC RE power to cost only 15-17 per cent more than new pithead coal plants, negligible after factoring the transmission cost waiver,” the report said, adding that even this difference is expected to narrow over time due to inflation in coal and coal logistic costs.
The country will have to decarbonise while its electricity demand continues to grow. Unlike globally, risk of stranded investments in India will be low as demand growth will ensure absorption of marginal capacities, ensuring supply reliability will remain challenging in an environment where the potential for sharp cost declines in up and coming technologies is high.
Interestingly, the report also said that the phase of peak shortages has already started as the country added 71 GW net firm capacity, thermal and nuclear, when peak demand rose by 80 GW over the last 10 years. “We expect the situation to worsen despite factoring 54 GW firm capacity addition as we estimate peak demand to grow by 138 GW over FY23-32E,” it said.
Goldman Sachs expects ‘firm’ capacity to command a premium over the next few years until battery storage prices decline to a level which makes coal capacity redundant ($89 per kWhr by FY30E as per our global batteries team estimates). However, until then, PSP and untied coal and hydro capacities will likely earn returns significantly above their cost of equity.
