Tim Buckley, Institute for Energy Economics and Financial Analysis
Several developments show Tamil Nadu is likely to remain India’s renewable energy leader even as reforms help the state transform from one of India’s worst performing Discom profiles in 2013-14 to a potential break-even result in 2018-19.
n February 2018, IEEFA published its case study of Tamil Nadu, focussing on India’s leading state in terms of renewable energy capacity (35 per cent of total state capacity at the end of March 2017). A month on, several developments show Tamil Nadu is likely to remain India’s renewable energy leader: wind and solar tenders of 3GW have been proposed; a 500MW industrial solar park is under development; European offshore wind tariffs continue to rapidly decline, encouraging TN to announce a 30 MW demonstration project; a 660 MW coal plant has been cancelled; and the Discom reforms of UDAY are continuing to see progress being reported by TANGEDCO.
Tamil Nadu is one of the nine leading states or countries globally in terms of grid integration of variable renewable energy. As detailed in IEEFA’s recent report “Power-Industry Transition, Here and Now”, variable wind and solar represents 15 per cent of Tamil Nadu’s total generation (including dispatchable biomass gets to the 16 per cent referenced in Figure 1). Lower renewable energy operating rates account for the much more substantial 35 per cent of total renewable capacity at the end of March 2017, or 42% including large hydro-electricity.
A 3 GW Renewable Energy Tender Planned
In March 2018, Tamil Nadu Generation and Distribution Corporation (TANGEDCO) revealed plans to tender 3 GW of renewable energy capacity soon. The capacity will consist of 1.5 GW of solar projects and 1.5 GW of wind power projects. This would build substantially on the 2.4 GW of solar development projects already in pipeline, thanks largely to the 1.5 GW solar tender in July 2017 awarded at Rs 3.47 per kWh. Tamil Nadu Electricity Regulatory Commission (TNERC) has indicated these reverse auctions will have an upper limit of Rs 3.00 per kWh (US$46/MWh) for solar, and Rs 2.65 per kWh (US$40/MWh) for wind. This looks consistent with recent solar tender results across India, but may prove optimistic in light of TANGEDCO’s improving but still parlous financial condition and given the significant one-third increase in imported solar module costs to US$0.40/w from the record lows of US$0.30/w seen in the second quarter of calendar 2017. On the positive, the threat of a 70 per cent solar module import duty has been removed for now with thewithdrawal of the dumping petition (for now) and the Parliamentary Standing Committee on Energy expressing opposition against the import duty.
India’s Solar Mission Continues
Mercom reported in December 2017 that the Ministry of New and Renewable Energy (MNRE) had granted in-principle approval for TANGEDCO to develop a new 500 MW solar park in Ramanathapuram in TN. TANGEDCO will be the 100 per cent owner of the solar park and Tamil Nadu Transmission Corporation (TANTRANSCO) will develop the evacuation infrastructure for the solar park, with the 2,000 acres of land reported to be government owned and unutilised.
In March 2018, National Hydroelectric Power Corporation commissioned its first 50 Mw solar infrastructure project in Theni, Tamil Nadu as part of an initial plan for 430 MW renewable energy investment as a diversification from much longer term hydro construction project developments.
In March 2018, it was reported that India is on track for 10 GW of new solar installations to be commissioned in the year to March 2018. Anand Kumar, secretary in the MNRE reported 7.3 GW were installed in the eleven months to February 2018 with another 2.7 GW expected to be added in March. On this estimate, India has reached 22 GW of total solar installs by end 2017/18, a near doubling in cumulative installed capacity in just one year, and putting India in the top three nations globally in 2017.
Offshore Wind in TN
India’s plans for offshore wind developments in Tamil Nadu and Gujarat are very promising options for longer term zero emissions capacity diversification. IEEFA modeled a 1 GW of offshore wind by 2027 as part of its Ten Year Plan for Tamil Nadu. March 2018 saw Tamil Nadu announce plans for a Rs 300 crore (US$47m) 30 Mw offshore wind demonstration at Arichamunai.
660MW Ennore Coal Plant Development Cancelled
In March 2018, TANGEDCO cancelled the 660 Mw imported coal-fired power plant in Ennore. The construction contract was awarded to Lanco Infratech Ltd in 2014 and was due to be commissioned in January 2018. But to-date the project is just 20 per cent complete. This cancellation may see the project re-tendered to another construction firm, but it does provide an excellent opportunity to review the power generation needs of Tamil Nadu, particularly given the huge cost differential between expensive imported coal (which has doubled since 2016 to over US$100/t) verses renewable energy, which has seen costs halve in the same period.
TANGEDCO Discom Reform
Under UDAY, TANGEDCO is committed to improving disclosure and accountability, as well as a set of targets for financial and operational improvements. For the nine months to December 2017, TANGEDCO will miss its aggressive loss reduction targets, but is still reporting a significant one-third year-on-year improvement in its ACS-ARR gap (average cost of supply less average revenue received) from Rs0.36/kWh in 2016/17 to Rs0.24/kWh to-date in 2017/18. The year-to-date 2017/18 AT&C loss rate is reported at 14.04%, a small improvement vs the 14.53% reported for 2016/17.
Tamil Nadu – India’s leading Renewables State
To conclude, Tamil Nadu continues to progress its electricity system transformation even as TANGEDCO supports the expanding energy needs required to continue solid economic growth. With aggressive plans for further renewable energy developments across solar, onshore wind being expanded to now include a pilot offshore wind project, the benefits are evident in both expanded capacity and wholesale cost deflation. This is supporting TANGEDCO’s ongoing reform from one of India’s worst performing Discom profiles in 2013/14 to a potential breakeven result in 2018/19, a huge US$2.1bn unfunded annual improvement.
[Kashish Shah, Research Associate at IEEFA, contributed to this article as a co-author]
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About Tim Buckley
Tim Buckley is Director of Energy Finance Studies, Australasia at IEEFA. He has 25 years of financial markets experience, specializing in equity valuation, including as an analyst and as co-founder and managing director of Arkx Investment Management.