India's Energy Transition: Is coal still necessary for reliable power supply?

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As India advances down the road of energy transition and the costs of integrating renewable power remain competitive, a critical question arises: should the country continue to combine coal with renewable sources to ensure reliable round-the-clock supply?

Earlier in the month, the Adani Group secured a long-term contract to supply 6,600 megawatts (MW) of renewable and thermal power to Maharashtra after its bid of Rs 4.08 per unit outperformed offers from industry rivals, including JSW Energy and Torrent Power.

Adani Power will deliver 1,496 MW of thermal power, while its sister company, Adani Green Energy, will provide 5,000 MW of solar power sourced from the Khavda renewable energy (RE) park in Gujarat's Kutch district. According to the bid conditions, Adani Green Energy will supply solar power at a fixed rate of Rs 2.70 per unit for the duration of the contract, whereas the rate for coal-based power will be indexed to fluctuations in coal prices.

Notably, the winning bid in another recent tender for solar photovoltaic (PV) cells paired with battery storage, floated by the Solar Energy Corporation of India (SECI), dropped to as low as Rs 3.41 per kWh (kilowatt-hour), reflecting a competitive landscape that’s approximately 16.42 percent  lower than bids associated with thermal power . With battery storage technology advancing and hybrid energy solutions gaining traction, the industry is  asking whether it's time to rethink the coal-solar blend in favour of more efficient alternatives.

"Blending renewable energy with other electricity sources is increasingly being preferred by DISCOMs to help effectively manage the grid. However, blending RE with thermal power is not the most optimal solution in the long-term due to its inherent technical challenges," said Pranav Master, Senior Practice Leader & Director – Consulting, CRISIL Market Intelligence & Analytics.

The Maharashtra State Electricity Distribution Commission’s (MSEDC’s) power contract aims to ensure reliable supply during the evening and at night, when solar energy is not available. The contract primarily focusses on solar power, with coal-based electricity supplementing the supply at night.  However, industry expert Tanya Singhal pointed  out that pricing is a "concern" with such tenders as cheaper alternatives are available in the market.

"The combination of coal plus solar is not a green tender, rather it's an add on to coal," Singhal said, adding that India can easily expand its storage capacity thanks to battery prices plummeting globally due to oversupply. With the National Hydroelectric Power Corporation’s (NHPC’s)  new tender, India's  solar + ESS (energy storage system)  capacity  has now grown to 5.6 gigawatt (GW) / 8.8 GWh .

This combination utilises battery storage to capture solar energy during daylight hours, allowing it to be deployed later during peak evening demand for power. Batteries can quickly provide electricity when needed, ramping up instantly. In contrast, coal power plants take time to increase their output, with a maximum boost of only 1 percent of the available capacity per minute, slower than hydro power projects, which can ramp up at 10 percent of their capacity per minute, according to  Master.

In renewable power, India is increasingly focusing on projects that can supply electricity round the clock (RTC), or during a specific time. In FY24, the country saw the highest number of tenders for projects that can supply round-the-clock electricity, or firm and dispatchable renewable power (FDRE) for a specified period, as per ICRA Research.

"As discoms demand a holistic green energy solution for round-the-clock supply, the number of RTC / wind-solar hybrid, and FDRE tenders have risen, and account for ~30 percent of the FY24 auctions. Additionally, such RTC / FDRE solutions are trending up in PPA (power purchase agreement) signings," analysts at Nuvama Institutional Equities said in a note.

The momentum in India's solar + ESS  space began in 2020, when SECI launched the first large-scale solar + BESS (battery energy storage  system) project in Chhattisgarh, comprising 100 MW of solar paired with 120 MWh of battery energy storage. The project, commissioned earlier this year, marked an important milestone.

Further, this year was also a turning point with SECI’s inaugural build-own-operate (BOO) model tender for solar + ESS, attracting significant attention because of its ground-breaking tariff discovery of ₹3.41 / kWh. This competitive rate generated increased interest in the combination of solar energy and storage,  said Debmalya Sen, India Lead – Energy, World Economic Forum, in a LinkedIn post earlier this month.

Energy storage systems, such as batteries, are vital to address the problem of  intermittent and variable power with renewables, and ensure stable electricity supply, analytics firm S&P wrote in its report titled 'Emerging Perspectives,' published last week. It noted that the country's power sector faces the hurdle of heavy reliance on coal, which  comprises about 73 percent of the total generation.

However, Master noted that coal-based power is likely to be more expensive than RE (solar and wind energy) plus energy storage over the life of a PPA, especially since coal and transportation charges are expected to escalate, while battery-based energy storage prices are expected to decline further over the next few years.