Tamil Nadu can reach 13.8 GW solar by 2027, finds IEEFA

New modelling by IEEFA has found that the southern Indian state of Tamil Nadu (TN) can increase its solar capacity six-fold and double its wind energy capacity by 2027.

In a report, published on February 7, 2018 —“Electricity Transformation in India: A Case Study of Tamil Nadu”—IEEFA sees that the state should reach a cumulative solar capacity of 13.8 GW in less than 10 years.

Providing a crucial reason for the forecast, Tim Buckley, IEEFA’s director of energy finance studies, Australasia said: “The upshot is cheaper electricity for customers and a return to profitability for TANGEDCO (Tamil Nadu Generation and Distribution Corporation).”

“IEEFA bases its forecast on a clear tipping point achieved in 2017: new renewable investments are being underwritten at tariffs of INR 2.43-3.00 ($0.037-0.047)/kWh, below the average tariff paid to NTPC, for thermal power in 2016-17 of INR 3.20 ($0.05)/kWh,” Buckley said.

The report finds that the state already operates the most diversified electricity generation fleet in India, with renewables representing 35% of installed capacity as of March 2017, nuclear 8%, and hydroelectricity 7%. Coal-fired power capacity represents 45% or 13.4 GW.

The report sounds a warning, however, on how TN is building 22.5 GW of expensive coal-fired power plants—almost double the entire existing coal-fired fleet in the state—in spite of the favorable investment advantages and lower tariff costs for wind and solar.

IEEFA noted that the Investments in new coal and nuclear based projects could cause further financial distress to the firms involved.

The report concludes that TN would be better served by a more diversified electricity-generation mix, which is well within reach if certain sensible policy and investment programs are pursued aggressively. Namely, low-cost solar capital expansions, and a concerted improvement in energy efficiency initiatives combined with a crackdown on reduced transmission and distribution (T&D) losses.

Buckley said, “Such a program would allow TN’s power utility to turn profitable without undue impacts on consumers.”

Opportunities
Further, TANGEDCO reported a staggering loss of INR 139.85 billion ($2.1 billion) in 2013-14. Buckley mentioned that TANGEDCO had suffered heavy and reoccurring losses due to excessive debt, inefficient T&D, high priced power purchase agreements, and underfunded agricultural sector subsidies.

However, subsequent reforms under UDAY (Ujwal DISCOM Assurance Yojana) scheme have helped TANGEDCO not only reduce its losses, to INR 37.83 billion ($582 million) in 2016-17, but lower its deficit on energy availability from 12.3% in 2011-12 to a record low 0.6% in 2015-16. IEEFA finds that the rapid reduction in the cost of solar and wind offers an opportunity for power utilities to turn a profit.

IEEFA expects a break-even result in the next financial year and for TANGEDCO to move to net profit for the first time in two decades.

“TN is uniquely placed to lead in this transformation by ensuring economical, time-bound capacity additions. Other than as replacement of end-of-life coal capacity, the state does not need any new thermal power capacity additions over the next 10 years,” Buckley stated.

He outlined that the additional demand growth is best met with various modern solar and wind technologies.

He stressed: “A relatively radical transformation of TN’s electricity sector is now the economically sensible strategic move. The state can leverage its already leading renewable energy base to drive new investment and employment opportunities in high-tech industries of the future.”

According to Buckley, this would accelerate new electricity exports inter-state generating a much needed, profitable revenue source for TANGEDCO.