One of the most crucial policy developments impacting the coal-based power generation segment has been the amendment to the environmental norms in December 2015 by the Ministry of Environment, Forest and Climate Change (MoEFCC). The Environment (Protection) Amendment Rules, 2015 had aimed to tighten the emission norms for particulate matter (PM), sulphur dioxide (SOx), nitrogen oxides (NOx) and mercury, and reduce the water usage of coal-based power plants by December 2017. However, the majority of the plants are yet to comply with these norms even though there is only a year left to meet the deadline.
There are various reasons for this. As per industry estimates, the costs for compliance with the norms are expected to be substantial. According to ICRA, the cost of coal-based generation is estimated to increase by 13-22 paise per unit, depending on the capex incurred. While the higher costs could be passed on as increases in tariffs, generation companies are worried about the additional burden the costs would put on the already weak financials of state discoms. Securing additional debt funding for capex in the case of projects under construction, some of which have already exceeded time and cost expectations, will be another challenge.
With less than a year left to meet the deadline, the power ministry is reportedly in talks with the MoEFCC for its extension. According to media reports, the MoEFCC is now contemplating relaxing the deadline to meet the norms by two years, and also adjusting the norms in such a manner that they are more practicable for power plants of varying vintages and capacities. While older plants are likely to be given an exemption, the new ones will be given more time to comply with the norms.
Environment (Protection) Amendment Rules, 2015
The revised standards to be met by the various categories of thermal power plants (TPPs) by December 2017 are given in the accompanying table. The norms are proposed to be implemented in a phased manner and the plants are divided into three categories based on their installation dates. Although the country did not have SO2, NOx and mercury emission norms earlier for coal-based thermal power plants, it had standards for PM10 emission that were lax by global standards. The emission standards have been made progressively stringent for newer plants, thus elevating their costs.
Impact on costs
As per ICRA estimates, the new norms are expected to impact an aggregate coal-based capacity of 261 GW, which comprises 187 GW of operational capacity and 74 GW of under-development capacity of.
To comply with the revised emission norms, coal-based power projects will require a capital expenditure of Rs 6 million-Rs 10 million per MW, based on the vintage of the plant. This aggregates to a capex requirement of about Rs 1.2 trillion over the next two to three year period, raising the generating cost incurred by gencos by 13-22 paise per unit. Further, the equipment installed to comply with the standards will generate additional operations and maintenance costs. Gencos might be able to pass on the higher cost of generation to the offtakers, primarily state-owned distribution utilities. This would, however, put upward pressure on the retail tariffs by fiscal year 2019-20, if the generating companies implement the revised norms over the next two years.
As per industry sources, the installation of partial flue gas desulpherisers (FGDs) to comply with the SOx emission norms, units with less than 500 MW of capacity will require an estimated Rs 2.5 million-3 million per MW. Units with a capacity of 500 MW and above will require full FGD to meet the SOx emission norms, which will entail a capital investment of Rs 5 million–Rs 6 million per MW. As of September 2016, units of 500 MW and above constitute approximately 56 per cent of the installed coal-based capacity.
Existing coal-based power generators will need to invest between Rs 1 million and Rs 1.5 million per MW to meet the NOx emission norms depending on the technical parameters of the plant. Meanwhile, upcoming projects may need to install selective non-catalytic reduction or selective catalytic reduction systems to meet the NOx emission standard of 100 mg per Nm3. These will require a capital investment of Rs 2 million-2.5 million per MW. In the case of particulate matter reduction, TPPs will need to upgrade their electrostatic precipitator systems, which would cost Rs 1 million-Rs 1.5 million per MW, based on the age of the plant.
According to TERI, the new environment norms could have a serious adverse impact on the environment. Soot or unburnt carbon is particulate matter, which needs to be reduced as per the new norms. To reduce the amount of soot produced by a TPP, it is required that boilers be run at a lower temperature. Running boilers at comparatively low temperatures affects the fly ash produced. For example, fly ash produced in lower temperature conditions exhibits lower pozzolanic characteristics, generates low quality gypsum and tends to be laden with a greater amount of waste mercury. Fly ash with low quality gypsum is not suitable for the cement industry and thus needs to be disposed elsewhere. The higher mercury content in fly ash is also problematic because it accumulates in the environment and causes problems.
Sodium dosing and fogging are two methods that are used to reduce the amount of particulate matter produced during power generation in a TPP. These practices cause fly ash particles to become charged and attach themselves to a part of the equipment. Such accumulation tends to be unhealthy for the equipment over time.
The proposed installation of FGD systems is also expected to create certain environmental challenges. The sulfur captured by FGD systems is in the form of calcium sulfite and calcium sulfate, or gypsum. This creates a greater disposal problem than faced in fly ash disposal because cement and white board manufacturers require more pure fly ash than gypsum. Thus, the unutilised gypsum would have to be disposed, raising the demand for already scarce land.
Power plants have been notified to use limestone as FGD material. This will cause the demand for limestone to increase exponentially, which would disrupt the ecological balance of regions in mining states and cause environmental damage. Operating FGD systems using limestone also increases the carbon dioxide emissions from power plants as limestone will decompose into calcium oxide and carbon dioxide. Also, ammonia is introduced to flue gas in small amounts to neutralize nitrogen oxide. However, depending on the operating conditions of individual power plants, a small portion of the ammonia contaminates the fly ash. Localised release of ammonia from fly ash into the atmosphere can also have adverse effects on human health and the environment.
The way forward
In sum, while environmental protection is essential, the attempt to impose stringent norms in a short time span may lead to greater problems. While utilities struggle to meet costs and remain profitable, their choices for meeting the stricter norms may not necessarily be ideal. The developed economies of the world took decades to reduce the environmental impact of their power plants. Thus, to expect Indian gencos to do the same in a span of two years is a little farfetched.