Reduce emissions at lower costs

New emissions standards for thermal power plants were notified in December 2015. Plants had to comply by December 2017 — but failed. Having dragged their feet for over two years, power plants now have yet another opportunity to comply over a five-year period that ends in 2022. But the pathway to implementation remains unclear. 

Air quality is no longer a seasonal irritant, nor solely the concern of environmentalists. A public health crisis is looming. It will adversely impact public and private spending on health care, make India’s cities less attractive for investment, and weaken long-term productivity, thanks to an unhealthy population. An order from the Central Pollution Control Board, issued in December 2017, lays out a clear implementation plan for both electrostatic precipitator (ESP) retrofits, aimed at particulate matter, and flue-gas desulfurisation (FGD) units for reducing sulphur oxides (SOx) emissions from power plants. A successful reduction in emissions from power plants will depend on whether plant operators invest in retrofits, whether regulators permit a full pass-through of costs, whether utilities pay higher tariffs, and whether bulk procurement costs for utilities can decline fast enough to offset this increase.

The total cost of implementing these retrofits could be in the order of Rs 750 billion ($11 billion). To give some context, utilities currently incur losses to the tune of Rs 700 billion a year from their operations. This is because consumers are either subsidised or given free electricity, thanks to political pressures. The installation and operation of these retrofits could increase the cost of procuring from coal-fired power stations by up to 90 paise per kilowatt-hour (kWh). This represents an increase of 20 per cent on the average costs of procurement today. If utilities are unable to recover the cost of supplying power, they are unlikely to recover higher costs resulting from plant retrofits. In turn, plant operators worry that their capital investment will not be recouped if utilities do not pay up. 

As a result, a bulk of the FGD retrofits is scheduled between 2020 and 2022. The ESP retrofits that have been scheduled for 2018 and 2019 are also for plants that are relatively better performers. Recent investigations reveal that the pace of implementation is well off the mark and there could be further delays. Coughing up this level of investment is going to be a challenge for a sector that is already in the financial doldrums. 

It is also clear that the health cost borne by society, of not implementing these standards, far exceed the cost of implementing them. Bearing the additional costs of implementation is the first best outcome. While the decks have been cleared, via orders from the Ministry of Power, to pass these costs on to consumers, they will still have to be determined on a case-by-case basis.  

One of the challenges is that India has followed a command and control approach, setting a uniform (for the most part) standard for all plants. The United States, for instance, addressed the acid rain issue of the 1970s and 1980s through a comprehensive cap-and-trade mechanism for SOx emissions. Given low levels of monitoring of emissions and capacity within state pollution control boards, it will take a long time to create a cadre of administrators who could roll out and monitor a cap-and-trade regime in India. Once a cadre of monitors has been created, it could be of use in extending emissions standards and implementation in other sectors, particularly industrial emissions. In the meantime, this capacity constraint would prolong any substantial action on emissions standards and air quality for quite a few years. 

If the first best approach is problematic, could we do this more cost effectively than what the current plan suggests? Yes. One opportunity is to consider the implementation of emissions control in tandem with increasing the efficiency of power plants and simultaneously addressing the flexibility needs of the future power system. 

The coal-fired generation fleet in India has an average efficiency of 32 per cent, with a world average at 37 per cent and advanced economies at higher than 40 per cent. Poor utilisation, scheduling and technical challenges imply that a fleet that is largely less than 10 years old is operating at low efficiencies. The overall utilisation of the coal fleet is likely to be lower than 65 per cent over the next decade. 

Meanwhile, a greater share of renewable electricity will demand a more flexible power system. Currently, only NTPC plants provide a bulk of the flexibility, and the requirements could double by 2022. For this purpose, some of the older plants could be renovated and modernised, only for flexible operation. In turn, costly retrofits for emissions control could be targeted at newer plants, which are likely to see more use as baseload. Rationalising the retrofits for emissions control would reduce the downtime — and total costs.

Emissions from power plants must reduce as a whole. But the devil, as always, lies in execution. The political economy of India’s power sector demands that we look for cost-optimal approaches. Rather than imposing standards that are unlikely to be implemented, monitored or paid for, India needs to consider how a complementary strategy of plant efficiency and fleet flexibility could offer a lower hanging fruit. Patience is a virtue that is in short supply when the capital city, and the country as a whole, is in the grips of a public health crisis. Time is running short.

Ganesan is Research Fellow and Ghosh is CEO at the Council on Energy, Environment and Water (https://bsmedia.business-standard.comceew.in)

Twitter: @GhoshArunabha; @CEEWIndia