Why is it in News?
- Multiple States — Assam, Bihar, Madhya Pradesh, West Bengal, Uttar Pradesh — have recently signed high-tariff coal-based PPAs (₹5.4–₹6.64/unit) even though:
- Solar/Wind costs = ₹2.5–₹4/unit
- Hybrid + Storage = ~₹5/unit or lower
- Meanwhile, 43 GW renewable capacity (~₹2.1 lakh crore investment) is stuck without buyers.
- Signals weakening demand for renewables and raises doubts over India’s energy-transition trajectory as the country also plans to add 100 GW new coal capacity by 2032.
Relevance
- GS-III | Energy, Economy & Environment
- Energy security vs energy transition
- Coal dependency, grid reliability, baseload economics
- GS-II | Centre–State Energy Governance
- DISCOM behaviour, PPA structures, policy incentives
India’s Power Mix & Transition Goals
- Installed capacity (approx. profile)
- Coal/Lignite: ~55–57% share in generation
- Renewables (solar, wind, biomass, SHP): ~30% capacity share, lower in actual generation
- Key targets
- 500 GW non-fossil capacity by 2030
- Net-zero by 2070
- Demand trend: Power demand is growing ~8–10% annually, driven by industry, AC load, urbanisation, EVs, and digital infrastructure.
Tension line: Rising demand + reliability concerns → states reverting to coal for baseload security.
Why States Prefer Coal Despite Higher Tariffs?
1. Baseload & Reliability Advantage
- Renewables are intermittent (“no sun → no power, no wind → no power”).
- Coal provides round-the-clock firm power for grids.
- Battery-storage–based RE is still perceived as risky/untested at scale.
2. Battery-Storage Constraints
- Current storage supports 5–7 hours, not 24×7 supply.
- Import dependence + supply-chain uncertainty
- 18% GST on battery services increases effective tariff.
- Discoms wary of technology + price volatility risk.
3. Discom Incentives & Risk Aversion
- Discoms prioritise short-term reliability over long-term cost efficiency.
- Failure of power supply → political & social backlash.
- Coal PPAs shift risk to generators, not discoms.
4. Curtailment of Renewables
- States like Rajasthan & Gujarat have curtailed solar output.
- Developers lose revenue → bankability issues → project slowdown.
Economic Signals Emerging
- Coal PPAs at ₹5.5–₹6.6/unit vs RE at ₹2.5–₹4/unit =
→ States are paying more for what they perceive as reliable power. - 43 GW RE stranded = capital locked, threatens investor confidence.
- Push toward new 100 GW coal capacity → long-term carbon lock-in risk.
Strategic Implications for India’s Energy Transition
Opportunities
- Coal ensures immediate grid stability & peak-demand support.
- Prevents blackouts during seasonal demand spikes.
- Supports industrial growth phase.
Risks
- Transition slowdown → jeopardises 2030 climate commitments.
- Long-term stranded coal assets if RE + storage becomes cheaper.
- Increased emissions & air-pollution burden.
- India may lose competitiveness in global green-manufacturing supply chains.
Governance & Policy Challenges Identified
- Absence of firm RE + storage procurement frameworks
- Weak incentives for Round-the-Clock renewables (RTC)
- Discoms’ financial stress → conservative power-purchase behavior
- Lack of:
- Grid-balancing infrastructure
- Peaking power markets
- Ancillary services pricing
- Policy-tariff misalignment (GST on storage, import dependence).
Way Forward
Short-Term
- Scale RTC renewable + storage tenders with viability-gap support.
- Reduce GST on batteries / storage services.
- Standardise RE-storage risk-sharing PPA models for discoms.
Medium-Term
- Build Green Grids + Transmission corridors.
- Develop peaking & ancillary services markets.
- Invest in domestic battery supply chains (PLI, recycling ecosystem).
Long-Term
- Shift from coal-centric baseload → diversified dispatch mix.
- Promote flexible thermal operation instead of new capacity.
- Align state-level PPA policies with national transition goals.
