Wind energy, India's response to the heatwave, Sinostan and more—Issue #3
The Big Picture
Unlike Oil, Gas and Solar, Wind gets relatively less coverage.
The outcome is a gap in our understanding of the factors enabling/ disabling growth in the sector.
For that reason, this week’s The Big Picture focuses on a strong report by M Ramesh in the Hindu BusinessLine on Wind Energy in India.
The sector is in trouble, he says. Of the 16,300 MW of capacity auctioned by SECI since 2017, only 12,740 MW was awarded. Of this, just 3,126 MW has been commissioned. Of the rest, 1,519 MW has been surrendered. Another 3,000-4,000 MW might follow suit.
What is going on? Companies won bids in hard-fought auctions, bidding as low as Rs 2.44 and Rs 2.51, on the assumption that turbine prices were stable. Turbine prices, however, have risen. Manufacturers are backing out of their supply commitments – and focusing on exports instead. Given Covid-19’s disruption of supply chains and higher shipping costs, raw material costs are rising. “Commodities such as steel, polymers, copper and rare earth elements make up about 19% of the total cost of onshore turbines and 13% of offshore ones,” wrote WSJ. “The price of steel—the most significant raw material—has nearly doubled this year.” Russia’s invasion of Ukraine is adding to these stresses.
As a result, writes Ramesh, manufacturers are backing out of their supply commitments – and focusing on exports instead.
The outcome is not a short-term blip. With rising awareness of their sector’s vulnerability, turbine makers are turning cautious. As Reuters reported, “The former CEO of... Siemens Gamesa last year warned that a decade-long race to lower the cost of generating wind power could not continue as it would reduce turbine producers' ability to invest in new technologies.”
Back home in India, the domestic market faces a shortage of turbines. “One developer... said that there are no turbines available for the Indian market now as the manufacturers have all committed to overseas customers,” writes Ramesh. As for developers, they are moving away from auctions and long-term PPAs to either sell directly to ‘commercial and industry’ customers or sell through the energy exchange, IEX. Both come with higher realisations.
India has set itself the target of adding 140 GW of Wind capacity by 2030. We are at 40 GW today with, as Ramesh writes, 20 GW set for scrapping by 2030. So, 120 GW by 2030. Or 15 GW a year. “In 2021-22, India added less than 1 GW of wind capacity. It is now clear that if 15 GW is to be achieved, the margin-crushing competitive bidding is not the route to take.”
PS: Also read this ET Prime report on Suzlon’s rise and fall.
The heatwave continued to make headlines
In other news, the heatwave continued to make headlines. Following the hottest March and April in 122 years, deaths due to heatstrokes have continued a worrying upward trend, reported Business Standard. Apart from testing the limits of human survival directly, as Bloomberg reported, heatwaves in the South Asian region are hammering farm yields – at a time food prices are already rising.
With this backdrop, let us turn to the Indian government’s flurry of announcements this week.
In India, amid power shortages and dwindling coal reserves at power plants, the government cancelled more passenger trains to facilitate the movement of coal. It will keep exporting wheat. It capped power prices on all exchanges. While denying any coal shortage, it told all powerplants to import 10% of their coal requirement – up from the current 4% -- to take the pressure off domestic coal. It also invoked Section 11 of the Electricity Act and told all imported coal-based powerplants to run at full capacity.
Questions abound. Even generators running on domestic coal are low on liquidity – discoms are yet to pay them. That question intensifies when we turn to imported coal plants. Lying shut for long, how will they pay for this imported coal – costing $140 a ton right now? Also, can cash-strapped discoms(not to mention households) afford this power?
And yet, the decision to import coal is better than the one mooted by union coal minister Prahlad Joshi. He wants to boost coal supply by selling 20 abandoned mines with 30-40 million tons of easily extractable coal.
The heatwave will recede but these mines will be around. This is a positive feedback loop. Rising GHG emissions > climate change > heatwaves > high power demand + poor planning > powerplants running low on coal > India boosting coal production (as opposed to more stopgap solutions) > rising GHG emissions > climate change...
The heatwave further underscores the importance of accelerating India’s energy transition.
Here, even as the Indian government muddles around, how is the private sector doing? We have the global instance of cement-major Holcim putting its cement factories in Brazil, Mozambique, India and Ireland on sale. “The company wants to more than halve its cement revenue share by 2025 while ratcheting up its greener portfolio more than 3.5 times,” reported Economic Times.
This is a climate change story. As CarbonCopy had reported last year, firms in polluting businesses run the risk of punitive action, constrained access to money and markets, not to mention low valuations. What we are seeing here is a western firm offloading its polluting business to firms in the global south. The consequences need to be understood.
Back home in India, companies are responding unevenly to such pressures. Some of the bigger firms in the country are hewing to ESG pressures. Most of the smaller ones, given their ongoing struggle to maintain profitability, cannot. Again, the consequences need to be understood.
Other news. Even as thermal power producers complained of low liquidity, Adani Power stood out. Its Q4 profits have jumped to ₹4,645 crores. This number stood at ₹13crore last year. A large chunk of this money is the result of a Supreme Court order which directed Rajasthan’s discom to pay ₹3,000 crores to Adani Power.
As Financial Express reported: “The Rajasthan government and Adani Group had in 2008 signed a contract for setting up the coal-based power project in Kawai, where the state assured support to get coal linkage from the Central government. But the power unit was left out of the Centre’s list for supply of coal in 2013. The company then made a claim before the state electricity regulatory commission for a compensatory tariff, as it had to depend on coal imported from Indonesia.”
In City Gas Distribution too, amidst mayhem -- the government froze domestic gas allocations forcing the sector into importing gas and then doubled domestic gas prices as well – AG&P has announced plans to invest another ₹18,000 crores. The big are getting bigger.
Turning to renewables, Reliance wants to create a mega land bank for setting up its 100 GW solar project. According to earlier reports, the company has asked for 4.5 lakh acres in Kutch. This is bad news for local biodiversity. The Great Indian Bustard was reported as extinct in Andhra Pradesh this week.
The EV sector made headlines as well. There is Ola. Last week, the company faced charges of data privacy violations. This week, it made news for engaging social media accounts to troll folks who complained about its scooters. The company is also seeing some senior management personnel leave. The latest one is the CEO of Ola Cars.
On CarbonCopy this week
India is in the throes of another large dam-building drive.
As the share of renewables rises, the country wants to use hydel for energy storage and grid-stabilisation.
We want to add 30,000 GW in hydelpower – and another 96,000 MW in pumped storage -- by 2030. The catch is that this push comes at a time when rival technologies like Battery Energy Storage Systems and Electrolyers are
projected to be cheaper than hydel
by 2030.
In other words, if India’s previous hydel push fell to speculators and political corruption, the new one faces competition from emerging technologies. We face questions about the fate of projects which prove to be uncompetitive. In the past, state governments have had to bail out stranded hydel projects. What happens this time around?
This is the running refrain of our times. Older forms of energy are struggling to retain a pricing advantage. Hardwired into these debates, as we saw with Wind, are questions on whether the price should be the only arbiter for choosing our energy technologies (what about other strategic objectives like insulation from global supply chain shocks and energy independence?). At the same time, as we see, discoms are cash-strapped.
Climate Long-Reads
The need to educate India’s legislators about climate change is urgent. Such a meeting took place in Chennai between MPs, MLAs and folks working on climate change’s impacts on the state. A report by The News Minute.
Why are India’s electric two-wheelers catching fire? One reason, says Business Standard, is India’s safety ecosystem. It writes: “India’s safety ecosystem is a black hole. Officials react only after crises. Gadkari ordered the Defence Research and Development Organisation (DRDO) to investigate the accidents, demonstrating the institutional vacuum at the transport ministry, which is being forced to rely on a defence agency to investigate an EV fire. There is little standardisation, the authority on testing and reporting (Automotive Research Association of India) has a website which doesn’t define details of standard tests to certify vehicles or have any guidance for consumers regarding choosing safer vehicles. In this landscape, firms are treating E2W manufacturing like a game of Lego. Getting components from China and assembling them here.”
Wired took one of the world’s cheapest electric cars – the Wuling Wuling Hongguang Mini EV – for a drive. It costs $5,000. A little below Rs 4 lakh.
Nature on Climate Tipping Points.
The current spike in raw material prices for wind turbines makes this essay on making renewables more sustainable very topical.
How the media reported on the heatwave.
Book Pick Of The Week
Sinostan: China’s Inadvertent Empire
, by Alexandros Petersen and Raffaello Pantucci
A lot has been written about Chinese expansionism. In The Dragon’s Gift, Deborah Brautigam charted China’s inroads into Africa. Bruno Macaes looked at China’s Belt and Road strategy. There is no end of similar books looking at the country’s inroads into Latin America. Sinostan focuses on China’s expansion into what is called Russia’s backyard – Central Asia. If Brautigam focuses on the centrality of aid in China’s push into Africa, Sinostan takes a different tack. As the FT says in this review: “The premise of Sinostan is that it was rather more ad hoc, with each step driven less by long-term planning than by more immediate concerns. At the heart of the story is the reversal of fortunes of China and Russia, two frenemies whose on-again, off-again relationship has been both a symptom and a driver of global geopolitical shifts.”