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Fulfilling India's energy needs

Fulfilling Indias energy needs
India's demand for electricity is seeing a steady rise. With an increasing number of villages being connected to the grid, this demand is only set to accelerate in the coming years. Currently, around 80 per cent of India's electricity supply comes from coal-based power. But the sector has been facing a difficult time over the past few years.

The energy needs of consumers in remote villages, where the grid has just reached, as well as in rich urban areas are not being met since power distribution companies (discoms) do not have money to buy sufficient power from generating companies. The accumulated losses of state discoms stood at Rs 4 lakh crore in 2014-15, as per the Power Finance Corporation. The result is: millions have no electricity; an equally large number gets limited supply and practically everyone else suffers from periodic power cuts.

At the other end, due to the inability of distressed discoms to buy power, power plants are not generating electricity as per their capacity. As a result, the plant load factor (PLF) or efficiency of power generation companies has steadily declined. Thermal power sector problems could worsen with the expected increase in renewable energy capacity. India has set an ambitious goal of creating 175 gigawatt (GW) of renewable energy capacity by 2022. Policies such as capital and generation incentives, priority dispatch (where power generated through renewable energy is the first to be purchased by discoms), reduced cost of transmission and cross-subsidies have favoured the growth in renewable energy. Rapidly falling solar costs have also provided a boost to renewables. The Central Electricity Agency's (CEA) draft Electricity Policy, released in December 2016, concludes that "no additional coal-based capacity is required during 2017-22, if renewable energy capacity grows to 175 GW". If another 50 GW of coal-based power, which is currently under construction, is commissioned, the PLF of the sector will decline to 48 per cent by 2022, says CEA. One of the consequences is that the commissioning of new coal-based plants has plunged 49 per cent from 19.2 GW in 2015-16 to 11.5 GW in 2016-17.

Despite these conditions, the idea that renewables may replace coal-based power to meet all of India's growing needs in the near future is wishful thinking. Renewable sources of energy such as wind and solar do not provide stable supply. The draft electricity policy states that 63 per cent of electricity will be supplied by coal power plants until 2021-22 even under the assumption that renewable energy capacity grows to 175 GW. Given its variability, renewable energy will supply only 20 per cent. Coal will remain the backbone of India's electricity supply for years to come.

Cost of power

Coal-based power comes at a heavy cost to the environment and human health. Of all emissions from the industrial sector in India, coal-based power plants account for 60 per cent of particulate matter (PM), 45 per cent of sulphur dioxide (SO2), 30 per cent of oxides of nitrogen (NOx) and 80 per cent of mercury (Hg). The air quality of most Indian cities is appalling. According to World Health Organization's Global Urban Ambient Air Pollution Database, four of the 10 most polluted cities in the world are in India. With increasing power generation from coal, the pollution load will only increase, if left unchecked.

It is for this reason that the Union environment ministry announced new environmental norms with more stringent emission limits for coal-based power plants in December 2015. These norms have already come into effect for upcoming power plants since January 2017. Existing power plants will have to comply with these norms from December 2017. But the power sector has raised a number of issues. They have questioned the appropriateness of the norms, the suitability and availability of pollution control technology for Indian coal, the cost of complying with the norms, and the feasibility of deadlines, among other things. There has been no concerted effort on the part of the government to tackle these concerns and expedite the implementation of the norms. In the absence of firm policy direction, power plants have found an excuse to delay taking action. As soon as the standards were announced, the power industry complained that the cost of pollution control would be very high, which a country like India can ill afford—cheap electricity is required to lift the poor out of poverty and improve their quality of life. However, the poor bear the highest cost of pollution in terms of impact on health, access to water and livelihood. And the "financial" investment in new pollution control equipment and upgradation is within feasible limits, says CSE.

Power generation companies released exaggerated cost estimates for controlling the emissions of each pollutant—between Rs 1.25 crore and Rs 1.5 crore per megawatt (MW) of power. Often these estimates were quoted by power regulators without verification. However, CSE estimated a cost of Rs 20-75 lakh per MW in its report last year. Since then various stakeholders have steadily ratcheted down their estimates, which are now in the range of those stated by CSE.

The estimates of the industry have created the misleading impression that all plants need to make an investment in the highest range. But not every plant needs to do everything. For instance, a number of plants installed during 2004-16 may need to undertake only maintenance of the electrostatic precipitator (ESP) and perhaps optimise boiler combustion. The cost of these upgrades may be from Rs 15 lakh to Rs 25 lakh per MW. On the other hand, a large-sized unit may need to install a flue-gas desulfurisation (FGD) unit and also upgrade the ESP or the boiler. This investment may range from Rs 60 lakh to Rs 75 lakh per MW.

The tariff impact should be calculated based on the average investment of the entire coal-based power generation fleet, and not on the maximum investment that some plants need to make. CSE research estimates that the cost of generation may increase from 20 to 35 paisa per unit. The ultimate impact on the consumer will be a little higher because of discom losses. But the increase in consumer tariff is not likely to be more than 10 per cent. In comparison, nationwide tariffs have gone up by an average of 8 per cent per annum over the last 5 years, according to the Union power ministry, indicating that the cost of pollution control is manageable.

However, the industry does face some difficulty in raising financing. Companies such as NTPC Limited may not face great difficulty, but many others are financially weak, partly on account of low plant utilisation. Second, the industry will have significant cumulative funding needs. As a result, banks are reluctant to increase their exposure to the sector. Regulatory guidance is urgently needed to help companies raise money from banks and make investments. CEA must immediately confirm benchmark capital costs, which can help power plants in getting approval for capital expenditure and the tariff application process. The Central Electricity Regulatory Commission (CERC) must clarify if the investments made for pollution control equipment and upgrades can be included in tariff calculations for plants that have power purchase agreements.

Timing is everything

The second major complaint by the industry is that the deadlines are too tight. The draft standards were released in May 2015. Existing plants will need to comply from December 2017. This means that the existing plants got almost 30 months to install new equipment, which is an achievable target. CSE research shows the plants could have easily fixed their PM and NOx problems and a sufficient number could have been close to FGD installation. For instance, equipment such as the low NOx burner typically requires a month for installation. An ESP requires three to six months. Even the FGD, which requires the longest time of around two years, could have easily been installed by the deadline. In addition, a sizeable number of power plants should already be meeting the new norms. Over the past decade, environmental clearances (ECs) have steadily tightened PM standards, which remain unchanged for a large share of coal-based power capacity. The timelines were deliberately ambitious given the scale of the pollution problem.

In this regard, there is a lot to learn from China's implementation of tighter norms for its coal power sector. It established national norms in 2012, and gave new plants just five months to comply. Old plants were given three years. The rationale for such short deadlines was that stake-holders were already discussing pollution control by power plants and the plants knew that new norms were imminent. Hence, they were expected to be prepared. As pollution levels grew to alarming levels, China introduced even tighter norms for key critical regions with shorter timelines. In such cases, extending timelines is acceptable, but it should be subject to firm commitments and penalties. Based on China's timelines and feedback from equipment manufacturers, regulators should demand that ESP upgradation be finished in the next two years and FGD installation by 2020.

Technology not a constraint

Indian plants have reasoned that the poor quality of Indian coal makes it difficult for them to meet the norms. Burning it produces lots of ash, so PM cannot be cut to the levels required by the new norms, they said. Pollution control experts disagree with this conclusion. In fact, globally, many plants that are using similar coal have achieved even lower emissions by increasing the size of ESPs.

(The views expressed are strictly those of Down to Earth.)
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