- 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 (NDCs).
- This idea has been further endorsed by the Power Minister .
RESEARCH STUDIES IN FAVOUR SHUTDOWN
- Some research studies have cited the economic and the environmental benefits of shutting down coal plants older than 25 years.
- As per the studies, 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.
- 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.
- These arguments can be backed by 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.
Hence, retirement of old coal plants has been pitched by the research studies.
CONCERNS WITH THE SHUTDOWNS
- The plants older than 25 years make up around 20% of the total installed thermal capacity in the country, hence, play a significant role in the country’s power supply.
- Therefore, the decisions regarding their retirement requires finer scrutiny.
Low cost production:
- While there are some old plants tied up in expensive power purchase agreements, there are also several old plants, which generate at lower costs.
- For instance, plants such as Rihand, Singrauli (both Uttar Pradesh), and Vidhyanchal (Madhya Pradesh), are all over 30 years old and have very low generation costs of around ₹1.7/kWh, which is lower than the national average.
- However, this drop in the cost can be attributed to locational advantage rather than efficiency, as older plants are likely to be located closer to the coal source, reducing coal transport costs.
- Thus, this highlights adds to the complexity of the issue, since efficiency does not naturally translate to savings.
- As per the analysis, the total savings from shutting down plants older than 25 years would be negligible and inadequate to even pay for the fixed costs (such as debt repayment) that would have to be paid if the plants are prematurely retired.
- Also, the savings in coal consumption by replacing older plants with newer ones will likely be only in the 1%-2% range.
Stranded assets and locked-in resources issues:
- Aggressive early retirement of coal-based capacity could result in real or perceived electricity shortage in some States.
- This may lead to new investments in coal-based base-load capacity by State-owned entities.
- This could worsen the situation, given that already the planned thermal capacity is in excess of what the country needs. Further addition of thermal power capacity will lead to stranded assets and locked-in resources issues.
- There are some old plants that may continue to be economically viable even if they install pollution control equipment as their current fixed costs (which would increase with pollution control equipment installation) are very low.
- Hence, the older plants with low generation cost should be installed with pollution control equipment to meet environmental norms.
- Indeed, about half the coal capacity older than 25 years has already issued tenders for pollution control equipment installation.
- Given the current trends in the country’s power sector, where intermittent renewable generation in the sector is growing, there is an increasing need for capacity that can provide flexibility, balancing, and ancillary services.
- 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.
- Further, the capacity value of the old capacity is critical to meet instantaneous peak load, and to meet load when renewable energy is unavailable.
Variable renewable energy (VRE) or intermittent renewable energy sources (IRES) are renewable energy sources that are not dispatchable due to their fluctuating nature, such as wind power and solar power, as opposed to controllable renewable energy sources, such as damned hydroelectricity or biomass, or relatively constant sources, such as geothermal power.
- This is not to say that no old plant should be retired. However, using age as the only criteria to drive these decisions can prove counterproductive.
- Instead, there is a need for more detailed analysis, considering the various technical, economic and operating characteristics of individual plants and units.
- Also, other aspects such as intermittency of renewables, growing demand, and need to meet emission norms, needs to be taken into account.