With the sharp decline in tariff bids of solar and wind energy projects in India, the country’s largest power generation company is now looking to replace some coal-based power supply with potentially cheaper renewable energy.
According to media reports, NTPC Limited will call for bids to auction 2 gigawatts of solar and wind energy capacity. The electricity generated from the auctioned projects will be used to replace the equivalent supply from coal-based power plants. The unique aspect of this plan is that NTPC would be allowed to sell the renewable energy to power utilities across the country under the existing power purchase agreements, significantly cutting down the procedural formalities.
NTPC has an operational capacity of 53.6 gigawatts from 51 power plants. This includes 37 thermal power plants (coal and gas-based), one hydro power project, and 13 solar and wind energy projects. A number of these 37 thermal power plants have power tariffs greater than the tariff bids seen in recent solar and wind energy projects.
‘Costly’ thermal power is most likely to be replaced with electricity from solar and wind energy projects. We reported last year that the lowest solar and wind energy tariffs in India are lower than the tariffs of 92% of operational thermal power plants in the country. The lowest tariff bids in India for wind and solar power projects is Rs 2.43/kWh and Rs 2.44/kWh, respectively.
Power utilities are required to pay two-part tariffs for all electricity supplied from thermal power plants in India. Solar and wind energy projects, on the other hand, have only a single tariff. This makes solar and wind energy tariffs financially very attractive. Additionally, transmission of electricity from thermal power plants also attracts additional charges from which solar and wind energy projects are exempt.
NTPC will share 50% of the cost savings with distribution utilities resulting from the replacement of thermal power with solar and wind energy. The company would also absorb any loss if the replacement results in increased costs.
While the idea of replacing thermal power with solar and wind energy sounds financially apt, the entire scheme would hinge upon the tariff bids placed by project developers.