Decommissioning Coal-Based Plants in India

The proportion of installed capacity from coal/lignite has decreased from 55 per cent in 1947 to 50 per cent in 2024, but it still dominates, accounting for 50 per cent of installed capacity and 73 per cent of generation as of March 2024. Central Electricity Authority (CEA) projects coal/lignite will still comprise 32 per cent of installed capacity by 2030.

Coal-based plant installations surged between 2007 and 2017, driven by high spot prices in power exchanges. This resulted in over 121,000 MW of new capacity, creating many stranded assets and reducing the Plant Load Factor (PLF) due to slower demand growth. PLF has improved recently due to increased post-pandemic demand. Of the total 210 GW coal capacity, about 64.5 GW (31 per cent) consists of ultra-super-critical or super-critical units, which are more efficient and use less coal per unit of electricity generated. Super-critical units have an efficiency of 42-44 per cent, compared to 33-37 per cent for sub-critical units.

Specific utility generation, measured in GWH per MW, indicates plant efficiency. Coal plants have a high GWH/MW ratio, second only to nuclear plants, which operate at full capacity unless faced with fuel or technical issues.

Coal plants in India range from small 60 MW units to large 800 MW super critical units. Most units fall in the 221-500 MW range, contributing 37 per cent of the cumulative capacity. Units sized between 551 MW and 660 MW account for 35 per cent of the total capacity.

To Retire or Not to Retire

The retirement of coal-based power plants in India is a contentious issue influenced by both technical and economic considerations. The central government lacks the authority to mandate the closure of state or private sector plants, leaving the decision to state governments, which often hesitate due to political and economic implications, such as unemployment.

The National Electricity Plan (2018):

The 2018 National Electricity Plan initially set retirement criteria for plants over 40 years old or under 100 MW, targeting 5.2 GW of capacity. The final plan revised the criteria to include plants over 25 years old or lacking space for flue gas desulphurisation (FGD) units, increasing the targeted retirement to 22,716 MW by 2022. Despite these plans, actual retirements between 2017 and 2022 amounted to only 10,044 MW.

The National Electricity Plan (2023):

The 2023 National Electricity Plan reduced the retirement target to 2,121.5 MW for 2022-2032. The government decided to extend the operational life of older plants, arguing they still had useful life. The Ministry of Environment, Forest and Climate Change (MoEFCC) also relaxed emission norms, facilitating this policy change.

Optimal Generation Mix in 2030:

CEA projected that to meet the 2030 demand of 334.8 GW, India would need a total installed capacity of 777 GW, with coal and lignite still contributing 251 GW. Given the slow pace of renewable energy additions, the government remains cautious about retiring coal plants prematurely, fearing it might lead to power deficits.

Political Economy of Coal Plant Retirement:

The two-part tariff structure in India, comprising fixed and variable costs, complicates the economics of retirement. Plants nearing the end of their power purchase agreements (PPAs) often face decommissioning pressure unless their variable costs remain competitive.

Pooling of 25-Year-Old Power Stations:

To manage the costs associated with older plants, the government proposed pooling all plants over 25 years old and setting a pooled tariff. This would ensure continued operation despite higher costs, but regulatory delays have stalled implementation.

Tightening Environmental Norms and FGD Installation:

The 2018 plan identified 16,789 MW for retirement due to space constraints for installing FGDs and reaching 25 years of age by 2022. Despite environmental regulations introduced in 2015, implementation has been slow, with deadlines extended multiple times, and penalties for non-compliance deemed insufficient.

Criteria for Retirement:

Deciding criteria for plant retirement involves balancing cost reduction and carbon footprint minimization. Retirement decisions could be based on factors like station heat rate (SHR) and variable costs, with plants located far from coal mines incurring higher costs. The complex interplay of these factors makes it challenging to establish uniform retirement criteria.

How Decommissioning Affects the Coal Sector

In India, many coal plants are ageing, with one-fifth of the capacity over 35 years old. Unlike coal mining, there are no specific laws for decommissioning and repurposing coal-based power plants. The coal sector, primarily located in Jharkhand, West Bengal, Odisha, and Chhattisgarh, is deeply integrated into the economy, providing direct and indirect employment to about 15 million people, with 1.2 million in direct employment.

The decommissioning of coal plants presents several challenges, including job losses and economic impacts on coal-dependent regions. The lack of clear laws and policies for decommissioning adds to the complexity. Decommissioning affects both direct jobs in the plants and indirect jobs in associated sectors. The transition to renewable energy sources poses geographic and economic challenges, as renewable energy potential is often located in different regions from coal-dependent areas. Without adequate financial and regulatory frameworks, the decommissioning process may leave sites in poor condition, further complicating rehabilitation efforts.

International Experience

Globally, the pace of retiring coal-based capacity is accelerating. Since 2000, approximately 460 GW of coal-based capacity has been retired, with 60 per cent of this occurring in the USA and China, 7 per cent in the UK, 6 per cent in Germany, and 2 per cent in Canada. Decommissioned plants are often left standing due to high costs and strict legal requirements, although some sites have been converted to natural gas, biomass plants, or even repurposed for non-energy uses like office spaces and shopping areas.

United States of America:

The USA has decommissioned an average of 11,543 MW of coal plants annually over the past decade. This surge is attributed to competition from natural gas and renewables, coupled with tightened environmental rules. The Environmental Protection Agency (EPA) provides guidelines, but decommissioning is not strictly regulated, leading some plant owners to sell plants in their current condition. Financing decommissioning varies by state, with regulated markets allowing cost recovery from consumers, whereas open markets include decommissioning costs in tariffs. Legislative measures, such as the Infrastructure Investments and Jobs Act, of 2021, aim to support affected workers.

United Kingdom:

The UK dramatically reduced coal use from 97 per cent in 1950 to 8 per cent in 2016 due to cheaper gas, stricter environmental rules, and carbon pricing. The UK’s shift from coal was driven by the “dash for gas” and later reinforced by climate policies and carbon pricing mechanisms. The 2008 Climate Change Act accelerated this, with coal phase-out set for October 2024.

Germany:

Germany’s Coal Exit Act of 2020 mandates reducing coal capacity to 30 GW by 2022 and 17 GW by 2030, with a complete phase-out by 2038. This process involves compensation through auctions, where plant owners receive payments for retiring plants early. The authorities can now order coal plant decommissioning without compensation from 2027. The country prioritizes worker support and strict environmental regulations during this process. While successful in closing many plants, the auction mechanism and compensation levels have faced criticism.

The Way Forward for India

To accelerate the transition from coal-based power generation to cleaner alternatives, a multi-faceted approach is necessary. Creating a favourable environment for renewable energy development is crucial. Currently, developers bear the entire risk, from land acquisition to revenue collection. Government intervention is essential to share these risks and stimulate investment.

Additionally, a comprehensive national plan for decommissioning coal-based power plants is required. A task force comprising experts from various fields should identify plants for closure based on economic, environmental, and grid stability factors. Aligning this plan with state governments is equally important. Ultimately, a collaborative effort between the central and state governments is indispensable for a successful transition.

For further reading, refer to the original source: “Decommissioning of Coal-Based Plants in India and its Ramifications” by the Indian Council for Research on International Economic Relations (ICRIER) and Somit Dasgupta.