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Insights into Editorial: Revisit the idea of ‘aging out’ India’s coal plants

 

 

Introduction:

Electricity is an essential requirement for all facets of our life. It has been recognized as a basic human need.

It is a critical infrastructure on which the socio-economic development of the country depends. Supply of electricity at reasonable rate to rural India is essential for its overall development.

Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation.

Services sector has made significant contribution to the growth of our economy. Availability of quality supply of electricity is very crucial to sustained growth of this segment.

 

Context:

As part of the Union Budget address for 2020-21, the finance minister said that the shutting down of old coal power plants, which are major contributors to emissions, will aid the achievement of India’s Nationally Determined Contributions, an idea which has been endorsed by the power minister.

 

India pushes deadline for coal-fired utilities to adopt new emission norms:

Thermal power companies, which produce three-fourths of the country’s electricity, account for some 80% of its industrial emissions of particulate matter, sulphur- and nitrous-oxides, which cause lung diseases, acid rain and smog.

  1. India has pushed back deadlines for coal-fired power plants to adopt new emission norms by up to three years and allowed utilities that miss the new target to continue operating after paying a penalty, according to a government notice.
  2. India had initially set a 2017 deadline for thermal powerplants to install Flue Gas Desulphurization (FGD) units that cut emissions of sulphur dioxides. But that was postponed to varying deadlines for different regions, ending in 2022.
  3. The new order dated April 1 from the Environment Ministry says plants near populous regions and the capital New Delhi will have to comply by 2022, while utilities in less polluting area shave up to 2025 to comply or retire units.
  4. Operators of coal-fired utilities including State-run NTPC Limited and industry groups representing private companies such as Reliance Power and Adani Power have long been lobbying for dilution of the pollution standards, citing high compliance costs.
  5. The latest notice follows suggestions from the Power Ministry that plants be given deadlines to adopt norms in line with the severity of pollution in the region where they are located.
  6. A task force will be constituted by the Central Pollution Control Board to categorise plants in three categories “on the basis of their location to comply with the emission norms”.
  7. The Power Ministry said that a “graded action plan” could help avoid immediate increase in power prices in various relatively clean areas of India and avoid unnecessary burden on power utilities and consumers. Indian cities have some of the world’s most polluted air.

 

How significant are the potential benefits?

  1. It would be uneconomical for old plants to install pollution control equipment required to meet the emission standards announced by the Environment Ministry, and hence it would be better to retire them.
  2. The availability of under-utilised newer (and presumably more efficient) coal-based capacity means that shutting down older inefficient plants would lead to improved efficiencies, reduced coal usage, and hence, cost savings.
  3. Untreated air and water pollutants from coal power plants, especially older ones affect the water and the flora and fauna of adjoining areas making them unfit for living or livelihood activities.
  4. The average cost of coal-fired projects is Rs.4 per unit and generally sees an upward escalation, whereas new solar power plants are being bid out at less than Rs.3 per unit.
  5. Therefore, replacing electricity from older coal plants with cheaper renewable sources will reduce the gap between cost of supply and revenue generation for DISCOMS.

 

Some studies cite advantages:

  1. Some research studies have also argued in favour of it, citing the economic and the environmental benefits of shutting down coal plants older than, say, 25 years.
  2. It is argued that the availability of under-utilised newer (and presumably more efficient) coal-based capacity means that shutting down older inefficient plants would lead to improved efficiencies, reduced coal usage, and hence, cost savings.
  3. Further, it is argued that it would be uneconomical for old plants to install pollution control equipment required to meet the emission standards announced by the Environment Ministry, and hence it would be better to retire them.
  4. The recent order from the Central Electricity Regulatory Commission (CERC) allowing Delhi’s BSES distribution company to exit its concluded 25-year-old power purchase agreement with the National Thermal Power Corporation Limited’s Dadri-I generating station, also lends some credence to this.

 

However, risks with retirement:

  1. The question then becomes whether these limited savings are worth the risks associated with early retirement of coal plants, especially given the current trends in the country’s power sector.
  2. To support the growing intermittent renewable generation in the sector, there is an increasing need for capacity that can provide flexibility, balancing, and ancillary services.
  3. Old thermal capacity, with lower fixed costs, is a prime candidate to play this role until other technologies (such as storage) can replace them at scale.
  4. Further, the capacity value of the old capacity is critical to meet instantaneous peak load, and to meet load when renewable energy is unavailable.
  5. There is also a political economy risk, as aggressive early retirement of coal-based capacity, without detailed analyses, could result in real or perceived electricity shortage in some States, leading to calls for investments in coal-based base-load capacity by State-owned entities.
  6. About 65 gigawatts (GW) of thermal capacity is already in the pipeline, of which about 35 GW is in various stages of construction.
  7. This is likely in excess of what the country needs, and further addition to it, driven by State political economy considerations, will lead to stranded assets and locked-in resources.

 

Alternate power sources:

  1. The National Electricity Policy 2021 is India’s first attempt at revising its electricity policy enacted in 2005, when the country produced negligible renewable energy.
  2. Experts say phasing in renewable energy sources and phasing out conventional sources such as coal and natural gas rapidly could lead to instability in the electricity grid, potentially causing blackouts.
  3. While suggesting flexible use of coal-fired and natural gas-fired power to ensure grid stability in the coming years, the draft policy lists promoting clean power as its primary objective.
  4. The policy draft suggested expediting adoption of “cost effective” pumped hydro storage to support the electricity grid, adding that only 4.8 gigawatts (GW) of a potential 96.5 GW of pumped storage capacity has been developed so far.
  5. The policy also recommends compensating natural gas-fired plants for operating at reduced efficiency to ensure grid stability, and for suffering higher wear and tear due to fluctuations in generation.

 

Conclusion:

Environmental activists have long rallied against India adding new coal-fired capacity. Solar and wind energy prices are falling to record lows, which would help the world’s third-largest greenhouse gas emitter cut emissions.

Instead, a more disaggregated and nuanced analysis, considering the various technical, economic and operating characteristics of individual plants and units, while also accounting for aspects such as intermittency of renewables, growing demand, and need to meet emission norms, would be appropriate to make retirement-related decisions.

Hence, it may be prudent to let old capacity fade away in due course, while focusing on such detailed analysis and weeding out the needless capacity in the pipeline, to derive long-term economic and environmental benefits.