Phasing out coal-based plants: The way forward

With the looming threat of climate change, the world, at large, is busy making plans on how to decarbonise. Several strategies have been devised, including plans to go net-zero by a certain identified date, approximately three decades further down the road from today. India too has declared its own date of turning net-zero, which is 2070. Along with this, India has laid down other targets as well, like having a non-fossil generation capacity of 500 GW by 2030, meeting 50 per cent of India’s energy requirements using renewable sources by 2030, reducing emissions intensity by 45 per cent by 2030 as compared to the figure in 2005 and reducing carbon emissions by one billion tons between now and 2030.

As far as India is concerned, all our energy is currently being used on how to reach the magical figure of 500 GW. There are several impediments which can be cited to actually ensure that we fall short of this target. First, would there be sufficient demand in the economy to warrant a non-fossil capacity of 500 GW? The other related question is whether we can ensure grid stability with such a huge capacity of renewable generation. A lot would depend upon the projected cost of storage in the years to follow. The next question is whether our distribution companies (discoms) will be healthy enough so as to give confidence to the private sector to invest such a huge amount in renewable generation? In fact, it is not just the health of the discoms which is a source of concern, it is the general investment climate. Reopening power purchase agreements (PPAs) and delaying the dues of the renewable generators has certainly brought in bad publicity. 

The theme of this piece, however, is not to delve on the issue of how to reach 500 GW by 2030. Rather, the emphasis is on how to phase out our coal-based plants so as to decarbonise the power sector. This phasing out will not take place on its own, and we have to work towards it consciously. What we need to do is to fix the criteria on the basis of which coal-based plants would be phased out. However, before doing that, let’s look at the macro figures. We have a total of 203 GW of coal-based capacity (January 2022), out of which 63 GW (31 per cent) is in the central sector, 67 GW in the state sector (33 per cent) and 73 GW (36 per cent) in the private sector. Let us now examine a few criteria on how to phase out and see the possible effects.

Should the age of the coal plant be the deciding factor, where all plants reaching 25 years of age will be decommissioned? The argument against this proposition is that the station heat rate (SHR) of a properly maintained plant running at good capacity does not become adverse over time. The SHR provides the calorific value of coal required for every unit generated. So the lower the SHR, the more economical is the plant. If that’s the case, then we should not dismantle plants on the basis of age, especially when they have lower fixed costs (compared to new plants) since they have paid off their loans etc. Of course, one good argument in favour of decommissioning 25-year-old plants is that one would not have to spend any money on installation of flue gas desulphurisation units (FGDs). If they were to be installed, there would be practically no time available to recover the cost in any case. The FGDs, incidentally, are installed to reduce emissions from coal-based plants and are required statutorily.

Phasing out could also be considered on the basis of the SHR. All plants above a certain SHR could be decommissioned since they are relatively more inefficient. However, this may lead to a situation that there would be an increase in the total generation cost because many pithead plants would get decommissioned necessitating transporting coal to longer distances. Coal transport is an expensive proposition and at long distances the cost can go up by 30 to 40 per cent. However, there will be savings since a higher coal cost will be offset against an increased efficiency as high SHR plants would be decommissioned (CEEW 2021). 

Yet another criterion could be doing away with those plants which do not figure in the merit order dispatch. In a merit order scheme, all plants are stacked up on the basis of their variable cost, lowest to highest. Since we have more capacity than we actually need, the high variable cost plants are not used at all. The problem is that even if one does not draw any power from the high cost plants, the discoms still have to pay the fixed cost of such plants. So one could explore the option of decommissioning these high cost plants as one possible criterion.

Whatever may be the criteria adopted, what has to be borne in mind is that 33 per cent of the coal capacity is in the state sector and the central government does not have the authority to decommission a state plant. It’s a decision which only the state can take and such decisions may not follow any economic logic and are a function of politics. The states like to carry on with inefficient plants since decommissioning will lead to large-scale unemployment, which is bad for vote-bank politics. In fact, even in the central sector, generators are not willing to do away with plants which are more than 25 years old and do not figure in the merit order dispatch because of their high variable cost. The case of NTPC’s Dadri-I unit is one such example where the generator is leaving no stone unturned to force the Delhi discoms to keep paying fixed charges at the cost of consumers.

To conclude, one must immediately decide on the criteria to be adopted for decommissioning coal-based plants and also devise a method which would be agreeable to the states. Bringing in more renewable capacity and decommissioning coal-based plants will have to go hand in hand. Considering the fact that we need to usher in about 40 GW of renewable capacity each year between now and 2030, there is little time to waste.

The writer is former member (economic and commercial) Central Electricity Authority