IEEFA: Declining efficiencies of coal plants jeopardise India’s COP26 emission targets

Thanks to renewables, India is making rapid strides in its energy transition and is not adding any new coal power assets. Yet, there is no policy thrust on enhancing the performance of existing coal plants, given these would facilitate integration of new renewables into the grid.

As in many developing countries, fossil fuels dominate in India’s electricity generation. Coal still plays a major role in meeting the country’s burgeoning energy needs, but there are gaping inefficiencies in energy use and carbon dioxide emissions.

On the efficiency front, reduction targets for energy use specified for coal plants under the existing policy, i.e., Perform Achieve and Trade (PAT) introduced in 2012, were less than the energy saving potentials, resulting in substantial inefficiencies in energy use.

On the emissions front, as part of the Paris Agreement (2015), India agreed to reduce the emissions intensity of its GDP by 33-35 % from its 2005 levels by 2030, revising this to 45% during COP26 along with a reduction in projected emissions by 1 billion tonnes up to 2030. However, it does not have any actionable carbon dioxide (CO₂) emissions reduction targets for the electricity generation industry as of now, even though the industry contributes the bulk of emissions.

India also enhanced the target for installed renewable energy capacity by 2030 from 450 gigawatts (GW) to 500GW and committed that 50% of its total electricity would be generated from renewable energy sources by 2030. Further, India pledged to achieve net-zero emissions by 2070.

Not surprisingly, CO₂ emissions levels in electricity generation have been increasing over time (see below). As per Central Electricity Authority (CEA) estimates, annual emissions in electricity generation are likely to increase from 922 million tonnes in 2018 to 1287 million tonnes by 2030.

In a recent study, we examined the efficiency levels of Indian coal plants, overall and in major operational areas, to examine whether any significant efficiency penalty was due to regulations.

Improving plant performance via tighter regulatory norms and better operational practices has proved difficult in India due to its federal setup. Electricity generation is subject to different jurisdictions: State electricity regulatory commissions (SERCs) for state-owned plants and Central electricity regulatory commission (CERC) for Central and privately-owned plants. Norms and practices of SERCs vary from those of CERC, particularly in regulatory independence, tariff setting, operational discipline, operation and maintenance expenses.

Falling efficiency levels of Indian coal-fired power plants

We found that efficiency has decreased over time, both overall and in major operational areas of electricity generation, CO₂ emissions and coal consumption. While analysing the actual performance of plants vis-à-vis their optimal performance, the greatest inefficiencies were observed in coal consumption (33.6% against optimal performance) and CO₂ emissions (30.7%).

Deterioration in efficiency levels suggest that the regulatory environment for electricity generation in India has not sufficiently pushed the plants to improve their performance. Inefficiency in electricity generation is thus a manifestation of regulatory failure.

We believe that the declining trend in efficiency levels is likely to continue into the future for three reasons: the limited extent to which the regulator can influence or sanction plants for performance improvement, more so in case of SERCs; the existing regulatory paradigm of setting performance norms in electricity generation based on the past performance of plants and not on best practices/best performing plants; and regulators’ laxity in norm-setting.

Less independent state-regulated plants are even less efficient than Centre-regulated plants

SERC-regulated plants are more inefficient than CERC-regulated plants with inefficiency levels at 24.5% and 19.0% respectively. This is because the norms of operational performance and practices such as the lack of regulatory independence followed by SERCs are at variance from that of CERC, in a manner that leads to underperformance in observed results vis-à-vis optimal for SERC regulated plants. SERCs would have to bridge this gap mainly through harmonising their regulatory norms and practices with that of CERC.

To this end, the Government of India has constituted a Forum of Regulators that allows exchange of ideas and best practices between CERC and SERCs and works towards uniformity of regulations among SERCs through the creation of Model Regulations. So far, efforts to harmonise the regulatory differences have failed, leading to the underperformance for SERC-regulated plants.

Regulators need to stipulate tighter energy efficiency and explicit CO₂ emission norms for the Indian electricity generation industry

Using data envelopment analysis (DEA) techniques, we estimated the actual performance of plants both in coal usage and CO₂ emissions vis-a-vis their optimal performance values and obtained the energy efficiency and CO₂ emissions savings. We found substantial potential savings in energy efficiency (42.5% of excess coal usage) and emissions (31.6 % of excess CO₂) in all plants put together (see table).

We observed that the electricity generation industry is adversely affecting the two main thrusts of the Government of India’s climate policy, i.e., increasing energy efficiency and reducing CO₂ emissions.

To meet India’s COP26 targets, it is imperative that existing coal plants lift their performance in energy use and CO₂ emissions. Given the lack of CO₂ emissions targets for electricity generation and the current lax energy saving targets, it is likely that energy and emissions performance will continue to deteriorate.

Energy Saving Potential and CO₂ Emissions Reduction Potential For Indian Coal Power Plants

Source: Authors’ calculations.

To arrest the deteriorating emissions performance, regulators must enforce explicit CO₂ emissions reduction targets for plants based on their emissions reduction potential. This is vital since coal plants contribute to nearly half of India’s CO₂ emissions and yet do not have any binding emissions reduction requirements which could potentially jeopardise India’s march towards attaining its COP26 goals.

This article first appeared in ET Energyworld

About the Authors

Abhinav Jindal is a PhD in Economics working in the energy space. He has more than 18 years’ experience in the power sector and his research is focused on issues at the interface of economics, energy and environment.

Parmita Srivastava is a content specialist and runs content agency Altlinks.