Shutting Down Old & Under-Construction Coal Projects Could Save ₹1.1 Trillion: Report

In India, shutting down 20-year or older coal-fired power projects and scrapping under-construction thermal power projects could save the government, power distribution utilities, and consumers almost ₹1.1 trillion (~$15 billion), environment consultancy firm, Climate Risk Horizons (CRH) has estimated in a recent report.

According to the report, an accelerated shutdown of old projects can yield savings of ₹530 billion (~$7.19 billion) over five years across 11 states, along with a substantial reduction in greenhouse gas emissions.

“Incurring additional financial burden of installing pollution control technology is not economical for power plants that are 20 years or older,” said the report. “Given the financial distress generators and DISCOMs are facing and the reluctance of lenders to lend to a struggling sector, an accelerated phase-out is the economical choice. Shutting down older coal power plants would entail replacing lost generation with new greener renewable energy,” it added.

Savings will accrue in two ways: shutting down 36,536 MW of older, inefficient coal projects will save an estimated ₹188 billion (~$2.55 billion) on investments in retrofit emission control systems.

“A quick phase-out of these older plants is the most economical option as retrofits for making them emission compliant would require additional capital expenditure and raise power tariffs,” the report mentioned.

Recently, Central Electricity Regulatory Commission suggested in a staff paper that thermal power projects retrofitting pollution control systems on commissioned units could be allowed to recover their costs in parts from buyers during the tenure of power purchase agreements.

Electricity procured from new renewables or the power exchange instead of thermal projects could lead to an additional saving of about ₹70 billion (~$950 million) per annum based on current tariffs. Since coal power tariffs tend to escalate annually, savings over a five-year tariff period would be over ₹350 billion (~$4.75 billion).

Despite a surplus generation capacity in the system, an additional 60 GW of thermal power is officially under construction across the country. Another 29,000 MW is in the proposal or clearance stage. Of this, 17,235 MW is likely to be completed by 2022.

Once commissioned, these projects will pose an additional fixed cost burden for state distribution utilities while further pulling down capacity utilization as a surge in power demand is unlikely in short to medium terms given the economic impact of the COVID-19 pandemic.

According to the report, freezing expenditure on 14.1 GW of projects under construction can save over ₹920 billion (~$ 12.49 billion) of public funds. If projects officially under construction but stalled, mostly in the private sector, are considered, this amount goes up to approximately ₹1.55 trillion (~$15 billion).

Halting further expenditure on coal projects that are in the early stages of construction is essential if states are not to create a fresh round of non-performing assets or lock power distribution utilities into expensive power purchase agreements and fixed cost obligations.

Mercom recently reported on Germany’s plan to phase out 4 GW of coal projects. In July this year, the German government passed a law to end coal-fired power generation by 2038. The law includes ways of retiring coal and lignite-based power projects by compensating generators against losses.

If state government-owned power distribution utilities faced with surplus generating capacity were to renegotiate fixed cost obligations in light of lower than projected demand, there could be an additional savings of approximately ₹120 billion (~$ 1.63 billion) per year.

Power tariffs over ₹4 (~$0.054)/kWh sold by thermal power projects, when replaced with electricity from renewables or procured from power exchanges at an average of ₹3 (~$0.041)/kWh, will lead to additional savings of about ₹550 billion (~$7.46 billion).

“Diverting some or all of these savings to cheaper renewable energy, grid modernization, efficiency, and energy storage investments would be a more productive use of public money,” the report said.

Last year, the Delhi government decided to officially close the Rajghat thermal power project and develop it into a 5 MW solar park. The power generation at this thermal project was stopped due to pollution concerns back in 2015.