The coal-fired energy sector in India is facing increasing pressure due to generator overcapacity, water shortages and the rise of low-cost renewables, a report by the US-based Institute for Energy Economics and Financial Analysis (IEEFA) and the Applied Economics Clinic (AEC) said on Wednesday.

The report – ‘Risks Growing for India’s Coal Sector’ – provides an overview of the ongoing challenges facing India’s coal-fired generators due to changes in the energy sector, fluctuations in water supply and stranded-assets as well as other risks.

“The energy landscape has changed dramatically in recent years and there are increasing stressors, particularly on the thermal coal sector, that requires urgent attention, water being one of the most prominent,” said David Schlissel, co-author and IEEFA’s Director of Resource Planning Analysis.

The report fine-points three major challenges that are likely to only intensify in the years ahead.

A significant overcapacity has resulted in a boom in coal plant construction. The first challenge is the over-building of coal-fired capacity.

The amount of installed coal-fired capacity in India is now 20 per cent higher than the country’s peak demand level, and fully 50 gigawatts (GW) above average demand levels.

The second challenge is declining water supplies.

Since 2012, both total annual rainfall and monsoon rainfall have generally been below normal levels and groundwater levels across India are in decline. Coal generation requires substantial amounts of water for steam production and cooling which is worrisome.

And the third challenge is specifically during the monsoon season with competition from renewables. Low-cost renewable energy has a great advantage during the monsoon season when coal generation dips while wind and hydro generation peaks.

“India’s overbuilt coal power capacity has left two related problems. First, utilisation rates have fallen, impairing the economic competitiveness of coal plants because they must spread their costs over a diminishing number of kilowatt-hours,” said Bryndis Woods, researcher at the Applied Economics Clinic (AEC) and co-author of the report.

“Second, over-capacity has burdened the system as a whole since the plants’ capital costs still need covering even if their electric output is not needed.”

During 2013-2017, 61 plants were forced to shut down due to a water shortage problem, resulting in roughly 17,000 gigawatt-hours of lost generation and revenue. Water-related problems are projected to worsen as the impact of climate change continues to exacerbate the duration and the severity of both flooding and drought.

(With input from agencies)