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Power Point | August 2017

Making power sector more Eco-friendly

<span style="font-weight: bold;">Ashok Sethi, COO &amp; Executive Director, Tata Power,</span> discusses how the Indian power sector being one of the prime sources of pollution, is presently going through a major transformation to ensure reduction in emissions. <p></p> <p> The reform measures introduced by the government in the form of new environment norms are at par with the best in the world. The environment reforms along with finalisation of new norms of efficiencies, encouraging wind and solar power, focus on e-mobility solutions etc. are expected to have socio-economic impact and change the industry dynamics. </p> <p>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 æpower for all'. It needs to be done through both benign renewable production of electricity and thermal plants with reduction in emissions leading to creating cleaner environment. Reduction in emissions certainly has its own challenges in terms of cost, logistics, land, technology, marketing of by product, water and finally competitiveness. </p> <p>With India's commitment to climate change mitigation and growth in renewable energy sources in the next decade, 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 gross domestic product (GDP) of the country.</p> <p> <span style="font-weight: bold;">New norms</span><br /> While the new environmental norms are meant to deal with emission reduction from existing and future thermal plants - a demand side measure -, there is a need to the address the supply side of coal. Indian coal has significantly high ash, Sulphur, and nitrogen content, thus requires focus on coal beneficiation. Like revised emission norms for thermal plants, coal supply quality norms for mines, especially for ash percentage, needs to be introduced along with timelines for implementation. </p> <p>As the implementation of the revised environment norms is expected to have a bearing on the cost of power generation, it is necessary that cost of mitigating environment measures is also optimised in the best possible manner. As per initial estimates, the capital expenditure to implement new norms would be between 70 lakhs to 1 crore rupees per megawatt of power generation capacity. The operating and maintenance costs for the emission control equipment would further increase the power costs thereby increasing the cost of electricity by 40-50 paise per kWh. The cost optimisation requires:</p> <p>i)Scan and identify the most suitable technology to each unique site, e.g. lime stone, gypsum logistics, sulphuric acid possibility, sulphate, etc.; <br /> ii)Policy to have Indian content to the extent of 60% -70% in value; <br /> iii)Standardisation of specs of different technologies by CEA; <br /> iv)Availability of loan at lower rate or viability gap funding (part of coal cess to be used) through a central agency based on competitive bids; <br /> v)Sizing the FGD most appropriately. The major hurdle of financing these new stringent norms can also be addressed by allocating the collections made from coal cess (Rs.400/tonne) under National Clean Energy &amp; Environment Fund (NCEEF).</p> <p>If environment norms are to be implemented on plants with life of units less than 10 years, it is expected that cost of mitigation may increase by additional 20 paisa per unit. The additional cost increase could be mitigated by extending PPA of such units by additional 5 -7 years provided it does not exceed 30 years of life. Units beyond 25 years, could be allowed a time of Five years to continue with a choice for the developer to replace these units by more efficient units. In case of must run units for transmission reasons, R&amp;M could be done for these units with an extension of PPA for 10 years, thus facilitating environment norm mitigation. Stranded assets could be allowed to compete as per bidding guidelines, with ceiling limit of normative fixed cost be allowed to be incurred on environment measures as additional fixed cost. </p> <p> <span style="font-weight: bold;">Age-wise distribution of thermal plants</span><br /> With the implementation of these norms, while the 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 level playing field and once through cooling. </p> <p>Analysts suggest that the market needs to get ready to execute projects nationally at such a large scale in the short timeframe available to implement norms. Another set of challenges that the industry faces is that of outages timings and management of grid, which is being tackled by Regional Power Committees (RPCs) and the Central Electricity Authority (CEA). We are yet to discuss the challenges of sourcing of raw materials such as limestone and ammonia and disposal of by-products, including competitive suppliers.</p> <p>The challenge in front of the government is also 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 power market. </p> <p>Dealing with errant generators, following two steps could be followed. In the first step, the govt. could introduce a cap and trade mechanism under which plants could trade instruments for shortfall or surplus in volume emissions for different pollutants. Under the Cap and Trade mechanism, all units could be asked to either convert within a defined period or else asked to adhere to a PAT like regime for emission improvements. 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 super critical plants or replace with other forms of electricity generation. The Cap and Trade mechanism will ensure the low-cost aging plants meet the environment norms or get enough time for decision on continuity or replacement with high efficiency plants. The pricing in the trading should be regulated by a government agency. However, the market may not be self-sustainable and may need financial support from the government from time to time from the Clean Environment Fund. </p> <p> <span style="font-weight: bold;">Cap and Trade Mechanism</span><br /> There is merit in making a comprehensive implementation strategy to meet new environment norms. While first steps to announce new norms, and involve 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 needs to be understood jointly by all the stakeholders to implement these norms successfully in the country. During the growth trajectory, we can't afford to go wrong when we have made commitments to the citizen of this country with our Make in India, Power for All and employment for youth.</p>
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