Policy

Decommissioning coal assets older than 25 years may result in savings of ₹37,750 crore: CEEW study

Our Bureau New Delhi | Updated on July 26, 2021

These savings would be generated through avoided annual capacity or fixed charge pay-outs, primarily towards operation and maintenance costs, it said

Decommissioning of coal assets older than 25 years with a total capacity of 35 GW on a priority could result in annual savings of ₹7,550 crore over the next 5 years, according to a study by CEEW Centre for Energy Finance (CEF) which examined 130 plants representing 95 GW of India’s coal-based capacity.

These savings would be generated through avoided annual capacity or fixed charge pay-outs, primarily towards operation and maintenance costs.

In addition, the savings would add up to a total of ₹37,750 crore over the plants’ remaining life. On the other hand, the study said the decommissioning of these assets would cost ₹21,500 crore in payouts to debt and equity holders and an additional ₹11,700 crore in compensatory payouts to the workforce. This suggests that decommissioning will pay for itself over a five to six-year period, the report said.

“Estimating costs is a crucial first step for decommissioning. A suitable mechanism must be designed to ensure a just transition for all stakeholders in allied sectors such as coal mining and railways. Managing equity payouts, which contribute to around 29 per cent of decommissioning costs, would also be critical. This could help lower the eventual transition costs and allocate more resources for workforce payouts,” Vaibhav Pratap Singh, Programme Lead, CEEW-CEF, and the study’s lead author, said.

Need for innovative mechanisms

In addition, while the CEEW-CEF study does not endorse large-scale decommissioning, it found that retiring 95 GW of capacity could cost between ₹2.3 lakh crore and ₹3.5 lakh crore to pay-off the debt and equity holders. Pay-offs to the workforce costs could add another ₹57,490 crore. The study also underscored the need for innovative mechanisms that can free up capital through decommissioning and once it gets unlocked, these resources could be made available for the country’s transition to renewables.

Meanwhile, another study by CEEW suggested that discoms in India could save up to ₹9,000 crore every year by prioritising coal power dispatch based on efficiency rather than the prevailing system which prioritises based on variable costs. This can provide the much-needed respite to public discoms, which last reported a loss of ₹61,360 crore in FY19.

The findings are based on the performance of 194 GW of Indian coal assets, out of a total capacity of nearly 205 GW during the 30 months preceding the Covid-19 pandemic. Besides this, the study also suggested that prioritising efficiency-based despatch during this time could have improved coal fleet efficiency by 1.9 per cent, resulting in annual coal savings of 42 million tonnes (MT) and a commensurate reduction in greenhouse gas emissions.

The study also recommends considering 30 GW of India’s coal-based capacity for accelerated decommissioning. “The proposed plants overlap with those identified for retirement in the National Electricity Plan (NEP), 2018. The study also recommends temporarily mothballing a further 20 GW of relatively new capacity that does not feature in the NEP list.”

Unified electricity market

The study also advocated for a unified electricity market that treats the whole country as a single dispatch region. Its findings reinforce the Central Electricity Regulatory Commission’s (CERC) proposal to move away from bilateral scheduling of generation and focus on shifting to market-based economic dispatch.

“The slower-than-expected growth of power demand and the increasing competitiveness of renewable energy in India have left our coal assets under-utilised. While India is contemplating a net-zero commitment year, its current plants are entirely premised on renewable energy addition only,” Karthik Ganesan, Director of Research Coordination, CEEW, and the study’s lead author, said, while further adding that given that the country would continue to rely on coal power in the coming decade, it must rein-in wasteful coal use and improve generation efficiency.

“Decommissioning a part of the fleet today could make coal power generation more efficient and less polluting and accelerate decarbonisation in the power sector. Decommissioning identified assets will usher in new investments in a more balanced generation system that does not have the sword of surplus hanging over it,” Ganesan further added.

Published on July 26, 2021

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