A tipping point in Indian energy
by Nikit Abhyankar, Amol Phadke, Ajay Shah
Business Standard, 27 September 2026
First, we got a revolution in the prices of solar panels. Now, solar generation delivers at Rs 2.5 per kWh. But the sun only shines for a few hours a day in India. Traditionally, this has implied a strong case for coal thermal plants. Then, we got a revolution in the prices of batteries.
Policy makers in India recently asked a remarkable and unusual question by global standards. The Solar Energy Corporation of India ran an auction to buy electricity capacity where they demanded the availability of a thermal generator. A bidder who plans to use solar or wind is then forced to load up with the batteries required, to charge in the day, so as to deliver thermal-style availability. This auction discovered a price of Rs 5.25 per kWh, guaranteed for 25 years. These developments are described in Phadke, Abhyankar and Paliwal, 2026.
It is hard to identify a single comparable price for coal thermal in India, because coal extraction rights are given out by the state in non-market ways. Recent new coal power contracts in India are priced at Rs 5.38 - 6.30 a unit. The SECI-discovered thermal mimicking price for renewable power is now 10 per cent cheaper than new coal.
This is a historic milestone. Every buyer of electricity in India will now look for ways to replace expensive coal power. The government controlled electricity system creates friction against this process. They impose cross-subsidies, levy transmission charges, and erect administrative barriers which protect coal. But a 10 per cent pricing advantage is sufficient incentive for firms to find their way out.
The traditional view was that there is not much give when it comes to buying electricity. You whined about the problems of the grid and left it at that. Now, every buyer has the incentive to think about how to make or buy solar energy and get it transported to the point of use, so as to reduce direct or indirect purchase from coal thermal plants.
The most remarkable feature of this situation is that, as they say in American, "You ain't seen nothing yet." There are four additional factors that favour the solar path.
- The thermal-mimicking price of Rs 5.25 per kWh is fixed in nominal rupees for 25 years. It gets cheaper by the Indian inflation of 4 per cent every year. The world price of coal (in rupees) grew by about 9 per cent per year in rupees over the last 20 years. The world is rapidly switching to renewables, there will be a glut of coal, so let us assume that in the future, the price of coal will only go up by only 2 per cent per year in rupees. Then we are comparing 2 per cent cost increase annually, for 50-60 per cent of the cost of thermal electricity, versus 0 per cent price rises for solar. Every year, the coal path becomes more uncompetitive.
- Energy system thinkers never envisaged that the future of electricity involved thermal-mimicking production. Every country is moving towards a market-determined price for electricity, first for commercial and industrial users, and then for all [EiE Ep40 The Brave New Future of Electricity]. Under market pricing, the evening price of electricity is higher. The demand side will adjust, so that the coal-style base load is not required. The SECI tender answers an extreme question: Does solar and batteries beat coal at a game defined on the terms of coal? We now know this answer is Yes. But the future definitely involves dynamically fluctuating prices in the day. The economic superiority of solar is then even higher.
- The cost gains on batteries and solar panels, through "Wright's law" [EiE Ep87 The power of Moore's laws] are not finished. In coming years, these price gains will continue. The capital cost of new solar and battery capacity will drop, and the superiority of solar over coal will grow.
- Firms exporting into destinations that have a Carbon Border Adjustment Mechanism will find the superiority of solar to be greater than 10 per cent owing to the greater use of carbon pricing outside India.
We are all used to the long journey of renewables and decarbonisation. This has slowly moved forward in past decades. While a lot of solar capacity has come up in India, its impact on the actual energy generation mix is as yet limited. India remains a country where about 74 per cent of electricity generated is based on fossil fuels. The weary, wise, experienced, powerful people believe they have heard the renewables story all their life and things haven't changed much.
We have crossed a tipping point and now things will change. The key thing is economic superiority. As long as solar was expensive, its growth was limited. But now, the economics of solar power has comprehensively beaten fossil fuels. Now we will get nonlinear adjustments in financial asset prices and in the real economy. It is not about the terrible carbon dioxide emissions associated with coal. It is not about the terrible air pollution that goes with coal. Those negative effects of coal never elicited a meaningful Indian policy response. But now, it is business. Every buyer in India that cares about reducing cost will find ways to get out of buying coal thermal power and switch to solar power.
What does this milestone imply for finance and industry?
- For firms that buy electricity, energy procurement should not be viewed as a passive administrative function. This now requires attention by boards, business leaders and consulting firms. There are opportunities to navigate grid access rules to bypass the government system. This may involve mechanisms such as captive generation, group captive structures, routing through ISTS, etc.
- There are investment and growth possibilities for renewable energy firms. Capital will flow into these ventures, driving a boom in finance and economics.
- The value of coal thermal firms has changed. New coal investments and some of the existing high-cost coal plants are increasingly priced out and will face declining utilisation and reduced margins. Lenders and equity investors need to reprice these exposures.
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