Photo: The Power Times

Shutting old coal plants, replacing capacity with renewables key to improving DISCOM financial health: Report

As the future of coal continues to become more tenuous, a new report has claimed that closing aging thermal power plants and freezing new coal capacity additions can cumulatively save India ₹1,45,000 crores in avoided costs.

India’s problem of mounting dues owed by power distribution companies (discoms) to power generators could be eased substantially by shutting old thermal power plants and freezing plants under construction, a new report suggests. Doing so, according to the report released by Climate Risk Horizons, can potentially save the country ₹1,45,000 crores in avoided costs which would improve the financial health of the rest of the coal fleet. Further, replacing old thermal power with renewables will have the added advantage of progressively reducing discoms’ debt burden.

According to the report titled ‘3Rs for DISCOM Recovery: Retirement, Renewables and Rationalisation’, India’s discom debt problem stems from overestimation of energy demand growth and costly long-term power purchase agreements (PPAs), in addition to myriad political decisions with implications on the costs of power. Analysing data from 11 major coal states which account for more than half of the country’s total discom debt, the report recommends starting with the shutting down of all thermal power plants that have passed the age of 20 years which are less efficient than newer plants. Shutting down 36.5GW of old thermal power in these states would save ₹18,000 crores in avoided costs of retrofitting emission reduction technology. Replacing this capacity with renewable power would further save states ₹7,000 crore per year due to the lower RE tariffs.

“Our analysis shows that it is far more efficient and cost-effective to shut down these old plants by 2022, rather than spend thousands of crores to retrofit them with FGDs and Low NOx burners. Given state governments’ precarious finances and the level of stressed assets in the banking sector, incurring debt for additional capex is difficult. These costs would also have to eventually be recovered from discoms and consumers via higher tariffs,” said lead author Ashish Fernandes.

Energy demand in India has failed to match projected growth, and the gulf has only widened following the COVID-19 pandemic. Surplus energy supply has seen plant load factors in thermal power stations across the country plummet. Despite this, India is currently pursuing an addition of 60GW of thermal power with another 29GW in the proposal stage. Freezing construction on just 14GW of these projects which are in early stages of construction can save over ₹92,000 crore which could further increase to ₹1,55,000 crores if stalled private projects are included to the list.

The report further highlights the issue of high fixed costs despite low demands, especially in the states of UP, Maharashtra, Karnataka, Gujarat and Tamil Nadu. The report advocates for restructuring of contracts and renegotiations to lower fixed cost obligations in light of the low demand. This, the report claims, would save approximately ₹12,000 crores per year. Laying out a long term strategy, the report further claims that phasing out more expensive coal power costing in excess of ₹4/kWh and replacing it with cheaper renewables costing under ₹3/kWh could generate further savings of ₹55,000 crore in the 11 states.

The complete report and state-wise data can be accessed here.