Indian state electricity distributors are signing long-term contracts with coal-fired power generators to meet a projected surge in evening demand, despite the country's efforts to expand clean energy capacity.

Uttar Pradesh, India's most populous state, and eastern Assam state, which recently withdrew incentives for clean energy projects, are looking to sign purchase deals in the next two months for at least 7 GW of coal-fired power, collectively, to be delivered in 2030, bid documents reviewed by Reuters show.

Those bids come after more than 17 GW of coal-fired capacity has come under various stages of contract in the 16 months through July, the largest such pipeline since the Covid pandemic, according to India Ratings & Research.

The procurement rush, fuelled by a projected rise in air-conditioning demand during non-solar hours and the slow build-out of battery storage, is driving new investment and is expected to slow decarbonisation efforts in the world's third-largest greenhouse gas emitter, analysts say.

Ashis Kumar Pradhan, senior analyst at consultancy Wood Mackenzie, said he expects the push will keep India hooked to coal for longer, despite targets to boost renewables.

India plans to increase its coal power capacity by 46% from 210 GW currently to 307 GW by 2035 and targets non-fossil fuel capacity of 500 GW by 2030, nearly double the 251.4 GW now.

"We have revised our projection for coal-fired power generation in India, with the expected peak now occurring in the early 2040s, compared to the late 2030s in our previous outlook," Pradhan said.

HIGHER COSTS
In August, Adani Power announced investments of about $5-billion in two coal-powered plants.

Torrent Power TOPO.NS, which announced a $2.5-billion coal power project this year, is evaluating plans to build 5 GW to 7 GW of capacity over the next decade, said company whole-time director Jigish Mehta.

While the plans may boost coal's share in the power mix above previous projections, solar power is still expected to be preferred during daytime as it is cheaper, analysts say.

"State distribution companies are facing grid instability due to renewable variability and lack of scalable storage," Mehta said.

However, building renewables with storage capacity is cheaper than new coal-fired capacity in India, said Alexander Hogveen Rutter, an India-based independent energy expert.

"New coal power is getting more expensive and the gap will only continue to grow as batteries scale up," he said.

India has auctioned approximately 12.8 GW hours of battery energy storage for development, but only 219 MW hours are operational, according to an August report by the Institute for Energy Economics and Financial Analysis.

States including Madhya Pradesh, Tamil Nadu and Bihar have cited delays in renewable projects while opting for new coal power projects this year, filings show.

"Renewables alone cannot fill the base load gap," said Narendra Bhooshan, a senior official at the Uttar Pradesh Energy Department, told Reuters.