India set to ramp up renewables capacity in 2024 but thermal dash continues

India's power sector is expected to see significant renewables capacity expansion alongside new coal-based capacities in 2024 as it works to meet the surging demand.

The country's power demand is growing at over 8% year on year at present, while its climate emissions are not forecast to peak until 2040-41.

"In 2024, India is expected to see the highest ever renewable energy capacity additions at 19 GW including about 16-17 GW solar and 2-3 GW wind," said Ankita Chauhan, Principal Research Analyst at S&P Global Commodity Insights.

According to Chauhan, India is also likely to add between 5 GW and 6 GW of new coal plants next year.

Existing assets can barely keep up. In October, coal-fired output surged to 117 TWh, up 33% year on year, accounting for 79% of total indigenous output, provisional data from the Central Electricity Authority showed.

In November, days ahead of the UN Climate Change Conference in Dubai, India's power minister RK Singh said the country would need to add 80 GW of new thermal capacity by 2031-2032 to meet demand.

In an inflections scenario, S&P Global forecasts India's energy related carbon emissions rising from 2.91 billion mt/year in 2023 to 3.47 billion mt/year in 2030, and further to 3.83 billion mt/year in 2040.

India has pledged to cut its emissions intensity by 45% by 2030 from 2005 levels, reaching net-zero emissions by 2070 under its Nationally Determined Contributions. Much of this is predicated on growing renewables to 500 GW by 2030 from today's 179 GW and establishing a carbon market.

In renewables, solar additions are being supported by a productivity-linked incentive scheme to encourage domestic manufacturing of solar PV modules and wafers.

Meanwhile, industrial sectors are increasingly looking to source renewables ahead of operationalization of a compliance carbon market.

India plans to implement a carbon market around 2025, with 11 sectors expected to be covered, including refining, cement, steel, chlor-alkali, aluminum, thermal power plants and fertilizers.

Reform agenda

Federal elections in 2024 are expected to return the Narendra Modi-led BJP government to power, providing continuity and forward momentum on a number of planned reforms.

First, a Market Coupling plan is set to align power prices across exchanges in a move that should boost transparency and liquidity, Ashish Singla, Principal Research Analyst at S&P Global said.

The first phase of a Market-Based Economic Dispatch mechanism is likely to be implemented, with the ultimate aim being to schedule and dispatch all generation on a marginal cost basis, Singla added.

A national operator is tasked with establishing a national merit order bid stack. Subject to constraints, potential system cost savings could be between $184,000-$491,000/day, according to think tank RMI.

Further, the implementation of a Renewable Generation Obligation (RGO) "will stimulate renewable capacity additions and promote biomass blending in coal plants," Singla said.

The RGO requires coal/lignite-fired plants to either generate or procure renewable energy equivalent to 40% of their thermal capacity.

"These initiatives are expected to reduce the emission intensity of the power sector, aligning with environmental sustainability goals," Singla said. India aims to meet 50% of its power generation capacity from non-fossil fuel sources by 2030.

Green investment trend

Meanwhile some of India's big corporations are committing to decarbonization agendas.

"India's net zero emissions will require the majority of growth in energy demand this decade to come from low-carbon energy sources," Amit Singh, CEO, Adani Green Energy told S&P Global.

"We are now working on our next milestone of developing the world's largest renewable energy cluster of 17 GW in the first phase, at Khavda in the barren landscape of Kutch, in Gujarat," he said.

Adani Green Energy aims to add over 5 GW renewable power in 2024, setting on the path towards 45 GW by 2030.

Meanwhile, UltraTech Cement said Dec. 13 that it plans to increase the overall share of green energy in its total energy mix from 22% currently to 85% by 2030, while Essar Power signed three MOUs with Gujarat Dec. 15, lining up a Rupee 550 billion ($6.61 billion) investment in green fuels and ports.

On power feedstocks, India's domestic thermal coal production is expected to grow in line with demand, capping import dependence.

"Power prices will remain linked to international coal prices" in 2024, S&P Global's Singla said. "Since coal prices are expected to fall from 2023 levels, market prices will fall as well."

A government official highlighted that India's hunger for coal will be a dominant factor in 2024.

"The government is doing a lot to ensure seamless power supply, including mine auctions, capacity additions etc... all this will start showing results now," the official said.

"While renewable capacity is also being added, immediate results are only going to come via coal."

On the Indian Energy Exchange, the Green Day-Ahead Market saw the weighted average October price at Rupees 6.37/kWh ($0.08/kWh), 58% higher year on year.

Platts, a part of S&P Global, assessed CFR India West 4,200 kcal/kg GAR thermal coal at $71.05/mt Dec. 18, up 0.35% day on day.