At a time when global capital is fleeing thermal coal, it is not a good idea to attract foreign investments in the sector. Future investments in coal are fraught with risk as leading global investors are gravitating towards renewable energy, a study notes.
The findings of New Delhi-based Centre for Financial Accountability (CFA) throw up unsettling statistics for coal-fired projects. The study analysed 54 energy projects for coal and renewable energy in calendar 2018 and deduced that 80 per cent of the total credit of Rs 30,534 crore was parked in renewable energy projects. Coal-based generation projects received only 20 per cent of the lending. Moreover, primary finance to coal power tanked by 93 per cent in value terms compared with calendar 2017.
In 2018, most of the credit for coal-fired generation projects was made available by government-owned or institutions where government had a majority stake. In contrast, 75 per cent of the finance for renewable energy projects came from privately controlled commercial banks.
Global trends also indicate that foreign capital is getting disillusioned with coal. Over 100 globally significant financial institutions have divested from thermal coal – the figure includes 40 per cent of the top 40 global banks and 20 leading global insurers.
“In this context, it could be challenging to attract foreign investment to a declining sector when India’s economic growth is slowing, and global investors are shying away from the dirtiest fossil fuel”, said Vibhuti Garg, energy economist with US-based think-tank Institute for Energy Economics & Financial Analysis (IEEFA).
“The government should channel its resources to a greater offtake of renewable energy in India. This would in turn require grid strengthening, improved inter-state transmission capacity and ideally a stronger price signal to incentivise peaking power supply to reward fast ramping and on-demand peak supply”, she suggested.
The country’s power sector is beset by huge stress as it grapples with issues across the value chain. The thermal generation sector is exposed to a colossal non-performing asset (NPA) burden of $144 billion (as of FY18), a deficient transmission network leading to grid congestion and curtailment and rising debt pile, resulting in the deterioration of financial health of distribution companies (discoms).
In particular, the thermal power plants are under huge strain – their capacity utilisation has stayed below 60 per cent for over two years. Some of the stressed coal-based generation units are highly leveraged as well, making debt servicing profoundly difficult. Moreover, late payments by loss accumulating discoms and renegotiation of tariffs over power purchase agreements (PPAs) have added to the woes of thermal power producers.
The article appeared in the Business Standard, can be accessed here.