Revisit the idea of ‘aging out’ India’s coal plants

Synopsis:

It is right to let old coal capacity fade away in due course, but age shouldn’t be used as the sole criteria for it. The focus should be on doing detailed analysis and weeding out the needless capacity in the pipeline, to derive long-term economic and environmental benefits.

Background:

The government is showing a willingness to retire old coal-based plants (25 years or more) as testified in the recent budget speech by the finance minister. However, some experts believe that the government should revisit the idea of aging out old coal plants.

Why should the old coal plants retire?

Firstly, there is the availability of under-utilized newer and presumably more efficient coal-based capacity. Hence, shutting down older inefficient plants would lead to improved efficiencies, reduced coal usage, and cost savings.

Secondly, they are major contributors to carbon emissions. Their closure will aid in achieving India’s Nationally Determined Contributions, as per the Paris Agreement.

Third, it would be uneconomical for old plants to install pollution control equipment required to meet the emission standards announced by the Environment Ministry.

• This argument was reflected in a recent order from the Central Electricity Regulatory Commission (CERC).
• The CERC allowed 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.

Arguments against the retirement of old coal plants:

Plants older than 25 years consist of around 20% of the total installed thermal capacity and play a significant role in the country’s power supply. 

There are also several old plants, which operate at lower costs. For instance, plants such as Rihand (U.P) and Vidhyanchal (Madhya Pradesh) are over 30 years old and have very low generation costs of around Rs. 1.7/kWh. The cost is lower than the national average.

Many studies suggest that the total savings from shutting older plants would be less than 5,000 crores annually. It is just 2% of the total power generation cost. 

• These savings may not be sufficient to even pay for the fixed costs that would have to be paid anyway, even if the plants are prematurely retired.
• Similarly, savings in coal consumption by replacing generation from plants older than 25 years with newer coal plants are also likely to be only in the 1%-2% range.

There are some old plants that may continue to be economically viable even if they install pollution control equipment as their current fixed costs are very low. 

• Indeed, about half the coal capacity older than 25 years has already issued tenders for pollution control equipment installation.

Old thermal capacity is required, to support the growing intermittent renewable generation until other technologies (such as storage) can replace them at scale. 

Way Forward:

• Age should not be used as a sole criterion to retire a coal-based plant. A detailed analysis should be done, considering the various technical, economic, and operating characteristics of individual plants and units before taking the retirement decision.
• Further, an emphasis should be placed on accounting for aspects such as intermittency of renewables, growing demand, and the need to meet emission norms.