The Indian thermal power sector is seeing huge distress due to the lower solar and wind prices which is making it very hard to sell coal-generated power in India. While solar power prices can be now bought at INR 2.5/kWh, thermal coal power prices were found to be quite high at INR 4.24/kWh in the medium term auction conducted last year. With no buyers for coal-based power at INR 4.24/kWh, a new auction to buy coal power has seen the prices go down to INR 3.26/kWh which is almost 25% below the price discovered last year. The crash in the price does not mean that the full costs will be recovered but for desperate coal power plants that have been constructed and do not have any buyers, there is little option. The fixed costs of the coal power plant are sunk and the thermal power producers will be happy to recover only a part of the fixed costs if they can sell power at all.

Solar Vs Fossil Fuel generation

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Some of the largest power producers in the country such as Adani Power, Jindal Power, GMR Energy, and Essar Power have put in the lowest bid from coal-based power projects in years. Many of these power plants were started in the last decade on the premise that they would be able to sell coal-based power at high prices using the merchant route when India used to face a shortage of power. PPAs were frowned upon at the point of time as merchant based power prices were almost 40-50% higher than the prices sold on a long term regulated manner. Now, that these plants have been built, the situation has entirely changed with the country facing a situation of surplus power and low wind and solar prices. The distribution utilities are now reluctant to buy power at prices higher than INR 3/kWh. This means that the thermal power producers are desperate to sell the power at any price.

Given that they can’t sell their power at reasonable prices, they would be happy to sell at prices where they can fully recover the variable costs and a part of the fixed costs. What has been worrying about the power producers is that major power buyers are refusing to sign long term power purchase contracts as the entire industry structure has changed with power prices going down each year due to advancement in solar and wind energy technology.

Also, read Coal Vs. Solar