An unprecedented drop in solar prices in India earlier this month persuaded authorities to cancel plans for mega coal power station projects that would produce an estimated 13.7 Gigawatts of energy. In January 2016, Finnish company Fortum made a deal with Indian municipalities to generate electricity in Rajasthan at a price of 4.34 rupees ($0.67) for each kilowatt per hour. Analysts at the time said it was impossible to see a price that low again.
But time defied what was deemed impossible when an auction launched for a 500-megawatt solar facility that would provide electricity for just 2.44 rupees ($0.38) for each kilowatt per hour – a rate that is 31% cheaper than what coal power mega project would have provided – making the cost of producing solar energy cheaper than fossil fuels.
Tim Buckley, Director of Energy Finance Studies at The Institute for Energy Economics and Financial Analysis (IEEFA), finds the implications of this event for transforming the global energy market profound. “Measures taken by the Indian government to improve energy efficiency coupled with ambitious renewable energy targets and the plummeting cost of solar has had an impact on existing as well as proposed coal fired power plants, rendering an increasing number as financially unviable,” Buckley says.
The landmark drop reflects the changing mindset of the Indian government, which has been transitioning from fossil-fuel energy sources to renewables. Just this year, authorities and companies made five major announcements cancelling coal-powered plants around the subcontinent. The authorities of Uttar Pradesh cancelled bids for 3.8 gigawatts of coal-fired power due to surplus power supply earlier in May. Essar Power put its 2-gigawatt Gujarat power plant in for a debt recast plan, citing the unviability of its import-coal-fired power plant. The company even filed a petition seeking an increase in tariff, citing higher global coal prices, but feels its request may not be met with acceptance since the Supreme Court had struck down similar pleas in the recent past.
A few days before Essar made the announcement, Gujarat formally cancelled plans for a 4-gigawatt import-coal-fired power plant on the Kathiawar Peninsula. Meanwhile in Odisha, 2.3 gigawatts of coal-fired power plants were cancelled altogether. Odisha Thermal Power Corporation Ltd. was planning a 2,400-megawatt coal-based power plant, however plans came to a halt since the plant’s coal supply plan was deemed insufficient. This followed the cancellation of a 2-gigawatt import-coal-fired power plant by Tata Power in Odisha which dates back to the beginning of this year.
According to a report released by PBL Netherlands Environmental Assessment Agency in 2016, India is one of the largest emitters of carbon dioxide globally. In fact, according to the average growth rate of carbon dioxide emissions, India is projected to surpass the total emissions in the European Union by 2020 (assuming that the EU would decrease its emissions at the 2006–2015 average rate of 1.9% per year).
The country witnessed its largest spike in CO2 emissions in 2015, mainly caused by the 5.1% increase in Total Primary Energy Supply – particularly the 8.1% increase in oil consumption and the 4.8% increase in coal consumption. Before the recent decline of solar power costs, India’s increase in coal consumption was concerning; three years ago, India’s emissions surpassed those of the United States and became the second largest coal consumer after China. Between 1990 to 2010, India doubled its coal power capacity from 50 gigawatts to 100 gigawatts; another 102 gigawatts of coal power were added between 2010 and 2015. In 2015 alone, 20.2 gigawatts in new power plants began operating on the subcontinent, and another 12.7 gigawatts were added by the beginning of 2016.
Last October, India ratified the Paris Agreement, announcing its willingness to lower the emissions intensity of GDP by 33% to 35% by 2030 below 2005 levels, and to increase the share of non-fossil based power generation capacity to 40% of installed electric power capacity by 2030. The country also pledged to create an additional carbon sink of 2.5–3 gigatonnes of equivalent carbon dioxide through additional forest and tree cover by 2030.
India is not the only place where solar prices are becoming more affordable than fossil fuels. Earlier this year, California’s wholesale electricity prices dropped to zero as the coastal state reaped the rewards of years of investing in renewable energy.