Shishir Kumar Asthana Moneycontrol Research
After achieving its goal of being a power surplus country, the Indian government is now taking the next step towards making it a low-cost and clean producer of electricity. In an important move the Union Cabinet Wednesday took two important decisions in this direction.
First was an approval of a transparent mechanism for coal allocation that secures coal supplies to stranded power projects and approved allocation of such linkages through an auction process. Linkages would be awarded to projects that do not have captive coal mines and procure coal through Coal India Ltd. The idea is to make coal available at a discounted rate.
The move is expected to have limited impact on coal volumes initially as the power plants were in any case procuring the fuel from Coal India. On the contrary Coal India will be impacted on account of providing coal at discounts.
Its plan to replace imported coal will not only depend the price per kg of coal but price per kilo calories of coal. Indian coal is reportedly of an inferior quality with his ash content and low calorific value, this is where Coal India is on a weak wicket. Coal India stock’s muted reaction of a flat closing on the news shows the little impact the stock to the announcement.
The second approval has a much deeper impact on reviving investment in the country. The cabinet cleared building of 10 new nuclear power plants of 700 MW each which adds up to 7,000 MW. The move could generate investment up to Rs 70,000 crore.
However, the overall size of power plants that will be commissioned is small given the 327 GW installed capacity in the country. But the critical point is the current nuclear power capacity in India is 6,780 MW. With one stroke the cabinet has doubled the capacity. There is another 6,700 MW of nuclear plant which are at various stages of construction. By 2032 government has planned to set India’s nuclear generating capacity to 63 GW.
In generating nuclear power, India is using a more efficient and safer technology – pressurized heavy water reactors. Out of its 22 operational nuclear reactors, 18 are using the heavy water technology, which uses natural uranium rather than enriched uranium.
The current installed capacity of 327 GW is intended to go up to 640 GW by 2026-27. Coal based power plant which have an installed capacity of 192 GW will be increasing to only 248 GW, an incremental 56 GW. The remaining 257 GW is expected to be contributed from cleaner fuels and renewables.
With tariff costs from nuclear and hydro power being cheaper than coal based power plant and cost of power generated from renewables falling below that of coal based power plant, the trajectory is clearly of India being a low cost power producer. Government has also spoken of rejuvenating 25 GW of old inefficient thermal plants.
With pick-up in demand not yet being reflected in the plant load factors of power plants, low cost generation units will soon have a larger share in power generation. This will help the state electricity boards (SEB) who have been demanding lower cost power.
While the effort of the government is laudable in focusing on cleaner and cheaper energy, transmission of the same will only be possible if SEBs put their house in order by cutting down transmission and distribution losses.
On the flip side, diesel generator manufacturers will be at the receiving end, but the consumer would willingly switch as his cost comes down.
In short the policy decision taken by the union cabinet will help bring down overall power cost which in turn will have a trickledown effect on the economy.
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