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Anyone thinking of setting up coal-based power projects may want to think again. The stratospheric rise in the price of imported coal and the shortage of the fossil fuel at home have given rise to a scenario once thought impossible: For the first time, the cost of wind power is now on a par with the price of coal-fired energy in some parts of India.
According to estimates of Bloomberg New Energy Finance, the most efficient wind projects in India run at a cost comparable to new coal-fed plants. Some of the best renewable energy projects produce power at costs that vary from Rs 2.7 to Rs 4 per kilowatt-hour (Kwh), compared to a coal energy cost of Rs 1.9 to Rs 4.8 per Kwh. Industry experts say, on an average, across the country, the generation cost through wind would be around Rs 3.5 to Rs 3.6 per Kwh, compared to Rs 4 by coal. The comparison is only appropriate for new thermal plants, since old ones have had plenty of time to depreciate their assets used for generation, thus lowering costs as well as prices.
Blowing hard in TN
Tamil Nadu (TN) is India’s champion of wind energy, accounting for 41.77 per cent of 14,706 Mw of it (as of July 2011) produced in the country. Up to thirty per cent of the electricity demand in TN is met by the wind energy. For a state like TN, which faces a huge power deficit, non-conventional sources of energy are becoming more critical.
The state government is trying to give a fillip to the renewable energy sector, not just because the cost of power generated is lower, but because the time span taken for wind projects to kick in is much shorter than thermal ones. Consequently, on August 1, the Tamil Nadu Electricity Regulatory Commission (TNERC) increased rates at which state utilities like the Tamil Nadu Electricity Board would buy power from wind farms — to Rs 3.51 from Rs 3.39 per Kwh.
The main driver for wind’s popularity is obvious. “Currently, coal price in India is around Rs 4,000-5,000 a tonne, while the price of imported coal is around five times of this,” says Ramesh Kymal, CMD, Gamesa Wind Turbines, a wholly-owned subsidiary of the €3.6-billion Gamesa Group, Spain. But other reasons are becoming increasingly relevant. “What is working to the advantage of wind farms is technological advancement in this space. The larger turbines, gearless machines and better mapping of sites have brought cost of generation down,” says Kameswara Rao, leader (energy, utilities, and mining), PwC India.
Coal vs wind
Not everybody agrees. “You cannot depend on wind energy, which is not available around the clock and 365 days in a year. Wind energy can at best be produced only for 4-5 months in a year. During that time also, it can be produced only when the wind speed is high,” says Arvind Gupta, MD, OPG Power Ventures, a coal-based power generation company and the president of Tamil Nadu Power Manufacturers Association. This low capacity utilisation of wind farms is a popular grouse among detractors.
Gupta says that renewable energy cannot match the prices of power plants that are already operating in the county. For instance, companies like Neyveli Lignite Corporation produces power at as low a rate as Rs 1.40 per Kw, and new super critical plants based on imported coal do so at around Rs 2.25. But, those are very old coal-based plants that have been running for many decades, hence allowing them to generate power at a low cost, says PwC’s Rao. According to him, only new thermal stations should be compared to wind farms.
Yet, wind comes with its share of concerns. P Krishnakumar, managing director, Orient Green Power Company, one of the largest wind energy companies in the country, with an aggregate capacity of around 400 Mw, says that an increase in finance and raw material cost has made life tough for wind energy players. “The installation cost of a farm that can produce 1 Mw of power has increased to around Rs 6 crore from Rs 4.5-5 crore about four-five years ago. This is mainly due to increase in cement and steel prices, finance cost (which is now around 14-16 per cent as compared to 9-12 per cent earlier).”
For wind to really take off nationwide, Rao says, there needs to be adequate payment security. A lack of incentives has also meant that capacity installed this year is likely to reach only 1,000 Mw, substantially lower than last year’s installed base of 3,000 Mw. Plus, transmission capacity to harness wind power needs to be increased substantially. Also, “states must appreciate that with Renewable Energy Certificate mechanism, they can buy the power component cost-effectively and export this green component to other states. Sometimes, the government does not appreciate this”, says Rao.