Tamil Nadu could save INR 35,000 crore with shift from coal to renewables

A new report suggests that the State shut down 3.1 GW of old coal plants and replace the lost generation with renewables. It also advocates switching from expensive power (tariffs > INR 4/kWh) to renewable energy (which now costs INR 3/kWh or less) and halting the construction of new coal plants.

February 5, 2021 Uma Gupta

Tamil Nadu state.

Image: Nzeemin/Wikimedia Commons

The Tamil Nadu state government and its cash-strapped Discom TANGEDCO can save INR 35,000 crore over five years through a combination of retiring 3.1 GW of old coal power plants, freezing expenditure on 3.5 GW of new plants at early stages of construction and availing of cheaper power to meet future demand, according to an analysis by research group Climate Risk Horizons.

The report Recipe for Recovery points out that TANGEDCO’s participation in the Ujjwal DISCOM Assurance Yojana (UDAY Scheme) in 2017 has failed to revive the discom. The Centre recently approved a bailout package of INR 30,230 crore for TANGEDCO, but without measures to either lower the cost of power supply or raise tariffs, energy experts fear overdues will continue to accumulate.

The report identifies cost reduction and savings opportunities available.

Retiring old coal

The report says avoiding retrofits by phasing out 3.1 GW of plants 20 years and older will save approximately INR 1,670 crore. These plants are Tuticorin, Mettur, North Chennai and NLC II Stage I. Replacing the scheduled generation from these old plants with cheaper electricity, either from renewables or through purchases on the open market, would save another INR 1459 crore annually (INR 7,300 crore over five years).

“Such plants (coal power plants that are over 20 years old) are typically less efficient, more polluting, and are now legally required to meet the 2015 air and water emission norms notified by the Ministry of Environment, Forests and Climate Change. The deadline for compliance with the norms is 2022, but so far, little progress has been made on equipping the plants with flue-gas desulphurization systems and Low NOx burners,” it stated.

“These old plants are not on track to meet the 2022 deadline for compliance with the air pollution norms. Rather than incurring INR 1,600 crore or more on retrofits, it is more economical to retire them. Given financial stresses, incurring additional debt is difficult, and these costs would have to eventually be recovered via higher tariffs. The power surplus situation in the state and country, as well as cheaper renewable energy, creates a potential win-win situation for Tamil Nadu’s consumers through retiring these assets”, said report author Ashish Fernandes of Climate Risk Horizons.

Tamil Nadu’s coal fleet has been running below 60% plant load factor for the last three financial years. Moreover, over 3 GW of new coal plants are nearing completion and expected to be commissioned in the next 12 months, ensuring that the situation of surplus electricity generation capacity will persist for the foreseeable future. This makes the task of retiring older plants easier.

Halting new coal

Apart from retiring old plants, the analysis suggests freezing expenditure on early-stage under-construction coal plants, given the state’s power surplus situation and the cost advantages now enjoyed by renewable energy.

The report identifies 3.5 GW of state-owned plants in the early stages of construction—Uppur, Udangudi and Ennore Expansion. It estimates freezing expenditure by halting construction on these plants would save over INR 26,000 crore.

Shift to renewables

The report stated gradually phasing out the most expensive power plants and replacing their generation with cheaper options, including renewables, will help reduce power purchase costs and Average Revenue Requirements.

Replacing expensive power above INR 4/kWh with cheaper power from renewable energy or existing higher-efficiency power plants at INR 3/kWh or less could generate savings of up to INR 6,000 crore per annum.

This can be done at the end of the current contract life. In case all parties are government entities, the contract can be terminated early upon mutual agreement, given the savings generated across the system. Contracts could also be reconfigured to reward flexible generation through a premium for peaking power supply, it stated.

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