India stands on the brink of a potential savings of Rs. 53,000 crore over five years by shutting down thermal power plants aged 20 years or older, as per a report by the research organisation Climate Research Horizon. These power plants operate in 11 states including Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal. These states are responsible for almost half of the discom dues held by Power Distribution Companies.
Deciphering the Report
The report further elaborates that the government could save more than Rs. 1.45 lakh crore by shutting down old coal-based power plants and halting construction on those still in progress. The primary reason behind these savings would be avoidance of retrofitting the old plants to decrease their harmful emissions. Additionally, substituting electricity from outdated coal plants with cheaper renewable sources would decrease the gap between the cost of supply and revenue generation for discoms.
Current State of Power Generation
India primarily uses three types of thermal power plants: Coal, Gas and Liquid-fuel based. The energy produced by these plants forms 62.2% of the country’s total power output. The impact of COVID-19 has decreased the demand for power. Moreover, ongoing trouble in collecting revenue has also contributed to an increase in overdue payments to power generators amounting to Rs. 1,14,733 crore.
The Impact on Discoms
Of a discom’s total costs, 75-80% are applied to power purchase. Many are locked into expensive decades-long Power Purchase Agreements (PPAs) without negotiable terms or the option to exit the contract. This affects discom’s ability to purchase power for distribution, impacting investment opportunities for improving infrastructure, and ultimately affecting the quality of power supplied to consumers.
Complications: Lockdown, Policy Issues and Theft
The nationwide lockdown due to the pandemic significantly reduced peak electricity demand. This reduction was further compounded by temporary closures of factories causing a drop in industrial power demand. Power theft presented an additional challenge. Additionally, high tariffs combined with unreliable supply have rendered Indian industry uncompetitive in global markets.
Government’s Role and Future Initiatives
In the 2020-21 Budget speech, it was advised to close thermal power plants violating National Clean Air Programme (NCAP) norms. Also, part of the Rs. 90,000-crore economic stimulus package announced by the Ministry of Finance is assigned for liquidity injection into power distribution companies. On a brighter note, the government has recently announced the launch of UDAY 2.0 which seeks installation of smart prepaid metres, prompt payment by discoms, making coal available for short term and reviving gas-based plants.
Potential Solutions
The average cost per unit for coal-fired projects sees a steady increase whereas new solar power plants are bid out at less than Rs.3 per unit. The private sector can bring in more capital and innovation. Moreover, long-term supply contracts need flexibility for public utilities to adapt to unforeseen situations such as a Covid collapse in demand.
Way Forward
Without a financially viable power sector, India’s socio-economic growth will suffer. The Indian government has vowed to provide 24X7 power supply to every village and every house in India. The fulfilment of this dream will rest upon a sustainable power sector. Therefore, the government should proactively address the concerns of these power distribution companies.