Opinion

Not yet ready to exit from coal plants

Rohit Chandra | Updated on February 26, 2019 Published on February 26, 2019

Much at stake The potential gains in producing clean coal are massive REUTERS

Given India’s medium-term coal-dependence, clean coal needs a finance and technology push

In the last five years, there has been a slow but growing international consensus around the withdrawal of financial capital from the coal industry. Large sovereign wealth funds and pension funds, as well as multinational aid agencies like the World Bank have undertaken this exercise by announcing their exit from coal financing. While coal-based generators in the West were already on the back-foot because of rising regulatory costs, most of the coal expansion in the 2010s has come from Asia, particularly India and China.

The idea of withdrawing financial support from the coal industry is well-intentioned; it is aimed at hastening the decline of coal-based power generation and hopefully encouraging cleaner alternatives in its place, given the global imperative of climate change mitigation, and the local benefits of improved public health. The problem is that the blunt instrument of divestment may actually exacerbate transition problems in coal-heavy countries.

Expansion continues

Many Asian countries are continuing to expand their thermal coal-based power generation fleet, despite the falling costs of renewables. India is no exception. Some countries that have reduced coal-based generation continue to rely heavily on exports of coal (Australia) or coal-generation power equipment (China). Coal-based power generation is not a singular industry; it is a network of upstream miners, machinery manufacturers, transporters, engineering consultants, plant operators, and consuming utilities (to say nothing of subcontractors). These industries not only collectively employ many people, but are also part of an ecosystem which has been running smoothly for decades.

Coal-based power plants are not like renewable plants, where most of the investment occurs upfront and then the operations and maintenance (O&M) costs remain relatively minimal. Coal plants have much higher intermittent O&M costs, and as regulations, particularly around fly-ash disposal, stack emissions, and effluent waste-water treatment, have become stricter over the last few decades, O&M costs have increased.

In India, State Pollution Control Boards (PCBs) have not been particularly effective at monitoring or enforcing compliance to these regulations, so one of the places coal plants have traditionally cut corners to reduce costs is in these areas. In the face of a competitive, regulated power market, and increasing financial pressures due to an increasingly hostile investment environment, Indian generators have few incentives to comply with regulations given their perpetual short-term liquidity problems.

With the Ministry of Power extending the timelines to comply with emission standards for thermal plants, we can see how little momentum there is in the system for regulatory compliance.

Part of the problem is that India’s power regulators have not been good at regularly updating prices to accommodate these increases in operational costs due to regulation. These costs must be allowed well in advance, and for the lifetime of the plant if power regulators want to give generators the right signals to invest in CO2 scrubbers, flue-gas desulphurisation technology (FGD), fly-ash management, and more. Otherwise, the race to the bottom on power prices will inevitably lead to power plants skirting regulations.

Expansion in power generation in India has been largely on the back of state financing; almost all coal power plants in India are constructed through massive debt financing from state-owned banks, regardless of whether the promoter is a state-owned enterprise or private company. International investment in coal generation assets in India has been minuscule, so coal divestment from India has been largely a cosmetic announcement rather than some massive withdrawal of capital.

The financial crunch to coal generators has come more from a series of continual shocks to the coal ecosystem: cancellation of coal blocks by the Supreme Court, the bankruptcy of discoms, logistical problems leading to coal stock shortages, and a myopic coal import ban. Looking at the number of power generators which have been classified as non-performing or gone into bankruptcy, this is clearly an industry desperate for capital, something India’s state-owned banks simply cannot provide at this time.

Creative financing

This is exactly the time when creative, targeted financing proposals should be brought in to India to address the power sector’s burgeoning problems. Manufacturers of plant machinery should be approaching large generators and showing them the massive efficiency gains that can be made from applying integrated control systems to old plants. Often, the cost savings alone can pay for the installation of these systems.

Multinational infrastructure investment banks should be working with Indian engineering consultants to float proposals to finance CO2 scrubbers, FGD systems, and other kinds of stack emissions management in power plants, conditional on continual public reporting of all stack emissions from benefiting plants.

This alone could have massive public health benefits, particularly in North India, and would also make the State PCBs’ lives easier.

Clean coal as an idea has huge potential in India because of the age and inefficiency of some of our plants. Given the short to medium term inevitability of coal-dependence, the potential gains to implementing clean coal are massive. This would include steps like more careful material management, managing coal dust and stack emissions, and ensuring that plant effluents do not mix with local water supplies.

A good example is how the city of Stockholm was partially powered by an urban power plant, Vasteras, which supplemented hydropower and provided standby and peaking capacity when required.

This plant not only had negligible effects on urban air pollution, but, in fact, ran cleanly for more than half a century until being slowly phased out. Closer to home, Torrent Power’s Sabarmati plant has been running in Ahmedabad for over 80 years and has operated well within the GPCB’s emissions norms.

The point behind all of this is that coal improving investments should not be lumped into the broader goals of coal divestment. Like most divestment movements, coal divestment fundamentally misunderstands technology systems and how they change over time. Coal may well be on its way out in the coming decades.

But for the moment, it is here to stay, and rather than wishing it away, it should be pivoted in a direction which achieves the goals which are universally accepted at this point — reduced air pollution and climate change mitigation.

The writer is a political scientist and economic historian working on the coal and power industries. This article is by special arrangement with the Centre for the Advanced Study of India, University of Pennsylvania

Published on February 26, 2019
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