How Renewable Energy is Changing the Economics of India’s Power Sector

“Renewable energy resources are providing a valuable solution to the challenge of high coal transport costs, allowing India to diversify its energy mix and reduce dependence on expensive and polluting fuel sources.”

India is heavily reliant on coal to meet its energy needs, with coal power plants accounting for around 70% of the country’s electricity generation. However, the transport cost of coal is a significant factor that can affect the delivered cost of coal to thermal power plants, which can vary significantly across different regions of the country. This cost has a significant impact on the overall cost of electricity generation in India.

A recent report from the National Renewable Energy Laboratory (NREL) highlights the importance of coal transport costs in Indian power supply planning. The report notes that for coal power plants not located at pithead locations or near coal mines, coal is generally transported by rail, which can result in large regional differences in the delivered cost of coal to thermal power plants. On average, rail transport accounts for over 85% of coal transportation costs.

The report also highlights how renewable energy (RE) resources can relieve the constraint of coal transport costs. Within the same region or type of technology, individual units can have different operating costs and performance. In addition, for many technologies, operating costs and plant efficiency can improve over time. The report uses the variable operation and maintenance cost parameter to capture differences in unit cost and performance for existing and planned units.

The report clusters individual units into “performance bins” or groups of units with similar costs, with each bin having at least five units and a minimum deviation in average variable cost between bins exceeding 200 Indian rupees (INR) per megawatt-hour (MWh). The report assumes distributed solar PV (DUPV), utility-scale solar PV (UPV), wind, and hydropower plants have no variable cost.

The report notes that RE resources such as solar and wind power have become increasingly cost-competitive with coal in recent years, and their installation can help reduce the reliance on coal and associated transport costs. This is particularly true in regions with high solar and wind potential, such as the western and southern regions of India.

The report also highlights the importance of plant heat rates in determining the cost of electricity generation. The heat rate assumptions for all technologies are based on technology and include assumed efficiency improvements over time. Other operating parameters are expected to experience less variation between model regions and over time.

The report emphasizes the importance of considering coal transport costs in Indian power supply planning and highlights how RE resources can help relieve the constraint of coal transport costs. The report’s analysis shows that solar and wind power can become increasingly cost-competitive with coal, particularly in regions with high solar and wind potential. This can help reduce the reliance on coal and associated transport costs, making electricity generation more sustainable and affordable in the long run.

Source: NREL Report: https://www.nrel.gov/docs/fy20osti/76153.pdf