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If you read this story from only an year back, the primary concern for the Indian power sector was the ~8% expected growth rate of the Indian economy heading into the future and the severe threat to the country’s energy security from reliance on imported coal and oil, poor financial health of the state discoms, unavailability of electricity for more than 300M people, and other problems like high capital costs for new power plants.

However, in the short span of time since that assessment, the coal sector faces a very different kind of existential threat now. Despite reforms like UDAY and the push for electrification of all sections of the country, the growth in power demand in the country has been flagging off. For FY16-17, up to Jan, the increase in power demand year over year stood at just 3%, compared to 4% the year before.

In contrast to the less than desired growth rates in power demand, thermal power generation in the country is estimated to grow at >4% in FY17-18, according to most recent estimates by Central Electricity Authority (CEA). As of the end of 2016, around 50 GW of coal capacity was under various stages of construction. Additionally, wind and solar energy have seen drastic increase in their competitiveness in most recent bidding rounds.

All these factors combined, CEA has made a dire prediction for the coal sector. According to it, by 2022, CUF for coal power plants could fall as low as just 48%. Capacity utilization as low as that essentially makes the coal plants economically unviable. The increase in costs of energy production and the drop in revenues is unable to cover for the operating costs. In addition, plant life is dramatically reduced.

So while on one hand more coal capacity continues to be built in the country, on the other hand the need for thermal power is estimated to drop steeply in the coming 5 years. Coal power plants in the country may need saving.

Read more here.

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