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Issue Brief

India’s Energy Transition:The Cost of Meeting Air Pollution Standards in the Coal-fired Electricity Sector

Vibhuti Garg, Danwant Narayanaswamy, Karthik Ganesan, Balasubramanian Viswanathan
August 2019 | Power Sector

Suggested citation: Garg, Vibhuti, Danwant Narayanaswamy, Karthik Ganesan, and Balasubramanian Viswanathan. 2019. India’s Energy Transition: The Cost of Meeting Air Pollution Standards in the Coal-fired Electricity Sector. Winnipeg: International Institute for Sustainable Development.

Overview

The issue brief, published in collaboration with IISD, examines the cost of compliance for coal-fired power plants to meet air pollution standards, and implicit subsidies associated with non-compliance.

Coal-fired power plants produce a range of externalities including the impact of local and regional air pollution on human health. In 2015, the Ministry of Environment, Forest and Climate Change (MoEFCC) legislated new standards to limit the concentration of sulphur dioxide (SO2), nitrogen oxides (NOx ), particulate matter (PM) and mercury (Hg) in stack emissions for coal-fired power plants. However, by December 2017, almost no coal plant had complied with the norms and the deadline was extended to 2022.

This issue brief highlights: the reasons for slow progress made by coal power plants; the cost of installing pollution-control equipment for the sector and implications on the electricity price; the cost of externalities related to human health; and a comparison of the cost of installing pollution-control equipment with phasing out non-complying coal plants.

Key Findings

  • The total capital expenditure required to install SO2, NOx, and PM pollution-control technology is estimated to be INR 86,135 crore (USD 12 billion), or INR 73,176 crore (USD 10 billion) if plants to be retired by 2027 are excluded.
  • If the pollution-control technology were installed, added costs would be between INR 0.32 per kWh to INR 0.72 per kWh for coal power plants (or around 9 to 21 per cent to average generation tariffs) depending on the size of the unit and other factors.
  • On account of remaining useful life and more stringent requirements, the average 500 MW units face the steepest tariff increases. In most cases, more than 80 per cent of the tariff increase will be in the form of a fixed cost. The variable component in all cases adds to less than INR 0.1 per kWh.

Average cost of pollution-control technologies per plant in India

Pollution-control technology Capital Cost (per MW) O&M Cost (per MW per annum)
Wet flue gas desulphurization INR 50,00,000 (USD 72,175) INR 6,00,000 (USD 8,661)
Dry flue gas desulphurization INR 35,00,000 (USD 50,522) INR 6,00,000 (USD 8,661)
Limestone injection INR 15,00,000 (USD 21,000) INR 6,00,000 (USD 8,661)
Low-NOx burner + open fire air INR 8,00,000 (USD 11,548) 0
Selective catalytic reduction INR 30,00,000 (USD 43,305) INR 50,000 (USD 722)
Electrostatic precipitator INR 5,00,000 (USD 7,217) INR 50,000 (USD 722)

Source: Srinivasan et al., 2018.

Key Recommendations

  • Distribution companies must pass on higher costs incurred due to installing pollution-control technologies to end consumers. Electricity subsidies should be targeted only to the poorest. Incentives, penalties, and seasonal shutdowns should also be used to control air pollution due to coal-fired power plants.
  • Empanelled agencies should carry out an independent assessment of retrofitting costs at the plant-level to expedite the ability of private sector power plants to submit tariff increase petitions to the regulators. The back and forth between the Electricity Regulatory Commission (ERC) and the Central Electricity Authority (CEA), and the resulting lack of clarity on cost increases is a key impediment to compliance. The exercise, instead, could be funded by the Government of India (GoI) to expedite the process.
  • The Ministry of Power (MoP) must take a stricter position on plants having to comply with the new standards, unless they exhibit a clear retirement or phase-out plan or have made material progress in awarding tenders and beginning the construction process.
  • Plants that do implement the technology need to be monitored to ensure that standards are being met.
In extreme cases, the tariff increases (because of installation of pollution-control technology) could be as high as INR 0.9 per kWh to INR 1.2 per kWh, but these are for a handful of plants when operated at very low plant load factors (PLFs) consistently, and it would be far more economical to retire these.

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