Towards a less polluting power sector
The Indian power sector being one of the prime sources of emissions is presently going through a major transformation to ensure their reduction.
The reform measures introduced by the Government in the form of new environment norms are on a par with the best in world.
These reforms along with the finalisation of new norms of efficiencies, encouraging wind and solar power, focusing on e-mobility solutions, and so on are expected to have a wide socio-economic impact and change the industry dynamics.
While these are noteworthy efforts, the per-capita consumption of electricity in the country is still much less than the world average. While India has rightly increased its efforts to reduce emissions, there is a need to increase its efforts to provide power for all through both, benign renewable production of electricity and thermal plants with reduction in emissions.
Reduction in emissions certainly has its own challenges in terms of cost, logistics, land, technology, marketing of by-products, water and finally competitiveness.
With India’s commitment to climate change mitigation and growth in renewable energy sources in the next decade, the energy mix is likely to significantly alter.
This would also impact the cost of electricity. Affordability of power is a key driver towards its demand, which in turn influences the GDP of the country.
As implementation of the revised environment norms is expected to have a bearing on the cost of power generation, it is necessary that the cost of mitigating environment measures is also optimised.
According to initial estimates, the capital expenditure to implement new norms would be between ₹70 lakh and ₹1 crore per megawatt of power generation capacity.
Including operating and maintenance costs for the emission control would increase the cost of electricity by 40-50 paise per kWh.
If environment norms are to be implemented on plants with the life of units below 10 years, it is expected that the cost of mitigation may increase by additional 20 paise per unit.
The increase could be mitigated by extending PPA of such units by five or seven years provided it does not exceed 30 years of life.
Units beyond 25 years could be allowed five years to continue with a choice for the developer to replace these units by more efficient units.
Stranded assets could be allowed to compete according to bidding guidelines, with a ceiling limit of normative fixed cost allowed to be incurred on environment measures as additional fixed cost.
With the implementation of these norms, while power plants using domestic coal are likely to remain competitive, those with imported coal-based plants may become uncompetitive.
The coastal plants on imported coal are likely to be allowed to have sea water FGD to create a level playing field. Analysts suggest that the market needs to get ready to execute projects nationally on a large scale in the short time-frame available to implement the norms.
Another set of challenges is outage timings and management of the grid, which is being tackled by RPCs and CEA.
We are yet to discuss the challenges of sourcing raw materials such as limestone and ammonia, the disposal of by-products, and competitive suppliers.
Level playing field
The challenge for the Government is to ensure maintenance of a level playing field between generators who have met the norms versus those who have not.
Additionally, the age profile of plants is so different that it is important to create a level playing field for generators without impacting their merit order dispatch position in the power market. Compliance could be assessed by Central/State pollution control boards and non-compliance should mandate significant penalty. The non-complying capacity could be phased out after the mandated timelines except for force majeure reasons.
It also gives an opportunity to replace low-efficiency supercritical plants or replace them with other forms of electricity generation.
There is merit in making a comprehensive implementation strategy to meet the new norms.
While the first steps to announce the norms and involve the CEA has been already taken, there is a need to consider various scenarios regarding plant life, technology, space constraints, economic condition of the plant, efficiency, cost, timelines, level playing field, etc, and create a comprehensive implementation policy document.
The challenges and recommendations need to be understood jointly by all the stakeholders to implement these norms successfully. We can’t afford to go wrong.