Case for a toll on coal-fired plants

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Subsidising renewable energy


A fund should be created into which all coal-fired power plants contribute tolls based on their wastage and carbon emissions. This can be used to subsidise the capital cost of renewable energy generators, says SHISHIR TAMOTIA.

The per capita consumption of electricity is quite a good indicator of the living standards of people in developing countries. India, currently almost at the bottom of the list, is bound to face a huge increase in the demand for electricity over the next few decades.

Planners envisage that this demand will be met mainly by burning coal in power stations. While it may be possible to increase power generation by setting up coal-based stations quickly, it may be almost impossible to sustain this level of generation in the long run for economic and environmental reasons. It is thus essential that a mechanism be established that will ensure the transfer of generation from thermal stations to other more renewable methods.

Electricity is generated by burning fossil fuels or through nuclear reaction or by the use of potential energy contained in the water stored in large reservoirs. Other technologies, such as wind, biomass and solar, are also being increasingly used, followed by tidal, geo-thermal energy. Thermal sources of energy — coal and gas — account for 65 per cent of generating capacity in India.

Depleting fossil fuel

Fosssil fuels contained in the earth are formed due to a rare activity that took place millions of years ago and cannot be recreated at man’s will. To exhaust such a resource in just a few decades or centuries is not only inequitable to future generations but could also prove fatal for present-day civilisation. The economic consequence of such a mistake was felt even at the time of the first oil shock in the 1970s.

The booming coal, gas and oil prices indicate similar economic penalty. Anticipating the inevitable disaster, most European countries have been swiftly moving towards renewable technologies for power generation for some time now. However, India and China appear to be simply copying the old and unsustainable Western development model.

In thermal power stations, electricity is generated by rotating an electric generator with the help of a steam or gas turbine. The conversion process depletes almost two-thirds of the energy contained in the fuel. Since most of the electricity is generated in thermal power stations, it translates into a huge and ongoing loss of energy.

Huge losses

For illustration, the Central Electricity Authority reported generation of 269.25 billion units in thermal power stations in India in the first half of the current financial year. About 80 per cent of this was in coal-based power stations, which translates to about 180 million tonnes of coal burned.

Since the thermal plants generate at maximum efficiencies of 34 per cent, approximately 120 million tonnes of energy contained in the fuel was wasted to generate power in these stations. At an average pithead price of steaming coal at the rate of $30 per tonne, it results in a waste of over Rs 28,000 crore per annum.

This is at a time when the country’s consumption — at around 600 kWh per person per annum — is one of the lowest in the world. Imagine when India rises to the ranks of the developed world and consumes an OECD average of over 8,000 kWh of electricity per capita. India would then be consuming coal at a rate of at least two billion tonnes annually and conversion losses will be dramatically higher.

Transport costs

Generating electricity from coal at a place other than the pits where it is produced adds to energy consumption in transport. Importing coal in large quantities, therefore, is another capital- and energy-intensive exercise. Price of imported coal is governed not only by its production but also by the transport costs involved. The delivered price of imported coal in India has grown over three-fold in the last 10 years.

Use of captive mining and blockage of Coal India’s price increase requests are sub-optimal solutions and, at best, “band-aid” answers to a problem that requires reconstructive surgery. Furthermore, given current usage patterns, even our most abundant resource, coal, is expected to run out in 45 years.

CO2 and global warming

There is another compelling reason to revisit the decision to augment coal-based generation. The most efficient coal-based power station produces about 0.7 kg of carbon dioxide (CO2) for every unit of electricity produced. There is scientific consensus that man-made CO2 is the main cause for climate change in the past century. The United Nation’s Inter-Governmental Panel on Climate Change (IPCC) has estimated that global temperatures have risen by 1 degree Fahrenheit in the past century, and as much as 4 degrees in some regions.

IPCC estimates that continuing trend will increase global temperatures a further 3-10 degrees by the end of the 21st century.

As a result, sea levels by the end of the century might be a metre higher than today, which the World Bank estimates could create 56 million environmental refugees in the developing world, including India.

If India too decides to meet its energy requirements by burning fossil fuel to support a population of one billion, the World Bank’s dire predictions may materialise faster than expected. It is thus imperative that new energy sources in India should be different and this calls for minimising our CO2 contribution.

Knowledge of global warming due to generation of electricity through coal cannot be disputed today, and India ought not to follow China in developing a coal-dominated energy strategy.

Renewable options

Renewable options for power generation are highly capital-intensive as the cost of technology development is to be factored into the initial period of use. Still, it would compare favourably if the following facts are considered in calculating the cost of energy and the cash-flows from coal-based power stations:

The cost of energy wasted in the process of generating power from an extremely inefficient source

Cost of carbon emissions

In order to estimate the true cost of coal generation, it may be a good idea to impose a toll on coal-fired power plants. The criteria for this toll would be based on two factors:

Amount of energy wasted in the power stations, or thermal efficiency;

Volume of CO2 emitted by the stations, or environmental efficiency.

A fund should be created, into which all coal-fired power plants contribute tolls based on their wastage and carbon emissions. The fund can be used to subsidise the capital cost of renewable energy generators.

Subsidising renewables

India can consider a scheme of subsidising solar photovoltaic panels to residential users. Assuming an average daylight of 4.8 hours each day, it would provide 1,752 units of electricity to the house-owner, the excess of which can be sold back to the grid. This could be as high as 10 times the rate of electricity. Two or more models could be supported by this fund to bring solar generation immediately into the system:

Model I

Individual home-owners would pay 95 per cent of the panel costs and receive a contract from the utility to supply electricity at a rate of Rs 30 per unit. In the process, their rate of return on the investment would be close to 20 per cent calculated at a panel cost of $7 per watt installed.

Model II

An individual house-owner would pay 10 per cent of the panel costs and receive a contract from the utility to supply electricity at a rate of Rs 3 per unit. In the process his rate of return on the investment would be close to 19 per cent, calculated at a panel cost of $7 per watt installed.

In both cases, the corpus would fund the additional costs. Model I would generally be opted for by the big builders in the cities, who would like to invest and guarantee returns to the house-owners at a subsidised rate. Model II would be the choice of those who do not want to inflate the cost of construction of the house. There could be variations of the two models. This fund would have a contract with the distribution companies around the country which, in turn, would develop various models to suit individual choices.

India could introduce 2,000 MW of solar capacity in the next 10 years by implementing a small toll, based on the efficiency of the plant and the carbon emissions per unit. In this period, solar panel costs are likely to become similar to coal-fired generation, reducing the need to add to the further waste of a precious resource. Moreover, it would help improve inter-generational economics and, more importantly, environmental equity.

(The author is CEO, Ispat Energy Ltd., Mumbai.)

(This article was published in the Business Line print edition dated November 27, 2007)
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