Energy transition is ₹75,000 cr. opportunity for Maharashtra

With Maharashtra’s state budget stretched thin by the Covid-19 pandemic, new analysis suggests significant savings opportunities in the state’s electricity generation sector – up to ₹ 16,000 crores over five years and ₹75,000 crores over the next decade.

The report “Maharashtra’s Energy Transition – A ₹75,000 cr. opportunity” by research group Climate Risk Horizons suggests that the state government can save thousands of crores through three measures: the quick retirement of 4,020 MW of old coal power plants by 2022, halting ongoing construction of the new Bhusawal unit 6 that is surplus to requirements and the longer term replacement of expensive coal power contracts with cheaper renewable energy by 2030.

Climate Risk Horizons’ report suggests that 4,020 MW of coal plants owned by the Maharashtra State Power Generation Company (MAHAGENCO) could be retired by 2022. The savings generated can be used to improve efficiencies in the electricity system, further reducing subsidy payouts from the government to Maharashtra State Electricity Distribution Co. Ltd (MSEDCL), freeing up resources for other priorities in the health and infrastructure sector. The Central Electricity Authority and the Central government have both urged the shutdown of older coal power plants across the country.

Older coal plants are typically less efficient, more polluting and will need to meet the 2015 air and water emission norms notified by the Ministry of Environment, Forests and Climate Change by 2024 at the latest. So far, analysts tracking air pollution say that MAHAGENCO has made little progress on installing FGDs for its older plants, of which several are in the pollution hotspots of Nagpur and Chandrapur.

“Retiring these old units (Bhusawal Unit 3, Chandrapur Units 3-7, Khaparkheda Units 1-4, Koradi Unit 6 & 7, Nashik Units 3-5.) instead of incurring the capex to retrofit them will save approximately ₹ 2,000 cr. in avoided costs. The cost of electricity from these units is far more expensive than today’s competitive tariffs for renewable energy. Replacing the scheduled generation from these old units with cheaper renewable electricity will save another ₹1,600 cr. annually (₹ 8,000 cr. over a 5 year period)”, said Ashish Fernandes, Lead Analyst at Climate Risk Horizons and author of the report. “The power surplus situation in the state and country, as well as the advent of cheaper renewable energy, allows the state government significant room to retire these end-of-life assets and generate savings which will benefit the discom and consumers.”

Maharashtra’s coal fleet has been running below 55% Plant Load Factor (the ratio of average power generated by the plant to the maximum power that could have been generated in a given time) for the last four financial years, even before the pandemic-induced slump in economic activity in 2020-21. The Maharashtra Electricity Regulatory Commission (MERC) multi-year tariff order projects that MSEDCL will have approximately 15% surplus electricity requirement till at least 2025. Moreover, the state’s unconventional energy generation policy is targeting an addition of 17,360 MW of renewable energy over the same period. This makes the task of retiring older plants easier, the report explains.

Apart from retiring old plants, the study also suggests three other ways that the state government can reduce costs in the electricity sector:
Reduce coal transport costs by ₹627 to ₹ 967 crores annually by re-allocating coal supplies after the older units are retired.
Save up to ₹ 3,158 crores by halting expenditure on the construction of Bhusawal Unit 6. Maharashtra has surplus electricity generation capacity so there is no economic rationale for this unit. If completed, it will force MSEDCL to pay high fixed cost charges despite low demand for power.
A 10 year transition to a renewable energy dominated electricity system can save the state thousands of crores through reduced power purchase costs. Gradually replacing the most expensive power purchases with cheaper options, including renewables, will reduce average power purchase costs. Over a 10-year period, expensive power above ₹ 4/kilowatt-hour (kWh) can be replaced with cheaper power from renewable energy at ₹ 3/kilowatt-hour (kWh) or less. This could generate savings of up to ₹ 12,500 crore per annum or over ₹ 62,000 crore over a five year period.

Responding to the report, Professor Yogesh Dudhpachare of Green Planet Society, Chandrapur said, “The residents of Chandrapur have suffered for years from the pollution of these coal plants due to air emissions and fly ash. Retiring at least the older units is the right thing to do environmentally and will bring some relief to us residents. Now this report shows that it will also save Maharashtra thousands of crores, so we expect the state government to act quickly to retire these units, instead of trying to prolong their life.”

Sunil Dahiya, Analyst at Centre for Research on Energy and Clean Air said “Research has shown that Nagpur’s residents breathe some of the most heavily polluted air in the state, with several coal power plants in and around the city. Reducing the air pollution levels that residents are exposed to has never been more urgent - retiring old coal plants and gradually phasing out the rest needs to be part of public health planning along with efforts towards curbing other sources.”

“The Covid-19 pandemic has hit both MSEDCL and state government finances. As the government explores ways to cut costs and improve financial health, retiring old coal plants should be part of the mix. A judicious retirement of these assets and incentivizing their replacement with cheaper renewable energy will help the state build back better. Given the surplus generating capacity that Maharashtra is faced with, there is plenty of headroom to speed up the energy transition,” said Fernandes.

Ashish Fernandes, Lead Analyst, Climate Risk Horizons