Facing Challenges Of Funding Thermal Power Plant Closure: Report

As India prepares to scale up renewable energy in the short- and medium-term, there is an eventuality it is not adequately prepared to face – the high costs of decommissioning its thermal power plants at scale, according to a new report.

India has no plans to phase out coal, or phase down its use in absolute terms in the foreseeable future. A plan notified by the Central Electricity Authority reportedly said India would need an additional 19-27 gigawatts (GW) of coal-based power till FY2032, and the government has repeatedly clarified that coal’s use will only be phased down relative to the increase in renewable energy.

But a new report by a think tank says India will need to factor in the costs of decommissioning thermal power plants in its net-zero plans, to avoid them from becoming stranded assets over the next five decades. According to the International Forum for Environment, Sustainability & Technology (iFOREST), “In the coming decades, there will be increased instances of thermal power plants (TPPs) being retired, and old units not replaced by new units.” Only 22.5 per cent of the 12 MW capacity retired since 2016 is being replaced, the report states.

Closing old and inefficient coal thermal power plants that are more than 20 years old can save state governments Rs. 18,800 crores by avoiding costs of retrofitting flue gas desulfurizers, according to Climate Risk Horizons, another think tank. But there are no regulatory requirements when it comes to the closure of a thermal power plant, nor any avenues for financing this transition.

If such regulations are not put in place now, owners may be strapped for cash when they are required to decommission their plants, the report warns. “We have a margin right now to set up a mechanism so that the situation can be managed better when it arises,” said Mandvi Singh, lead author of the study and head of the Energy and Climate Change programme at iFOREST.

India has a coal-based installed capacity of 208.6 GW, and an upcoming capacity of 28.5 GW. The report estimates that decommissioning each megawatt (MW) of coal capacity will cost between $50,000 to $150,000 in India – cost that’s too much to bear without proper planning.

Decommissioning A Power Plant

Decommissioning a thermal power plant takes place in three stages, according to the report. The first is the pre-demolition stage, which includes shutting down the plant, securing closed facilities, valuing assets, transferring materials, and manpower planning. The second is the demolition stage which involves the safe deconstruction of chimneys, boilers, buildings and other structures, and the removal of scrap from the site. The third stage is the post-demolition stage, involving environmental remediation of the plant site, such as ash disposal and coal storage.

Without earmarking funds for the decommissioning of power plants, “public and private companies likely resort to inaction,” says the iFOREST report.

Earlier this year, the Central Electricity Regulatory Commission (CERC) said with concerns over the impact of inefficient power plants on the climate mounting, “it is imperative to have appropriate provisions in the Tariff Regulations to deal with all eventualities,” – including the decommissioning of plants before time.

The “salvage cost” of a plant – or what’s recovered from the sale of its assets and equipment – is unlikely to meet the costs of decommissioning, according to iFOREST. Instead, power plants can use tariff-based mechanisms to accrue the amount needed or recover expenses from the electricity distribution companies, depending on how much of the power plant’s lifetime is left.

For a majority of existing and upcoming thermal power plants with at least five years left – a total of 188 GW capacity – iFOREST recommends each come up with a detailed decommissioning plan and assemble a committee to arrive at a cost. “The decommissioning cost should then be approved by the State ERC and charged at a uniform rate (Rs. per kWh of electricity sold) on all power plants in this category in the respective states,” says the report. On average, the tariff cost will go up by 8.8 paisa per unit.

For plants that have fewer than five years remaining, a “lump sum recovery of expenses from distribution companies would become necessary,” says the report. Distribution companies (discoms) should pay 50 percent of the cost two years before the plant retires, then another 25 percent one year from retirement, and then the remaining amount two years after retirement.

“Ultimately, these decommissioning costs will have to be paid through the discoms. Power from a coal power plant will get more expensive when decommissioning costs are taken into account,” said Singh, adding, “Our analysis shows that in most states, this cost is under 10 paisa given the vintage of the plant.”

For plants that may have to shut down before they complete 25 years, “power plant owners should be encouraged and expected to identify innovative financial mechanisms and arrive at a private deal with climate funds, multilateral banks, or other sources for relief and recovery of decommissioning costs.”

Providing for decommissioning costs is “crucial for ensuring that there is no economic barrier in executing end-of-life management,” the report says.

(Published under Creative Commons from Mongabay-India. Read the original article here)