Tamil Nadu can save 35,000 cr by shutting old coal, halting new construction & boosting RE

Chennai, February 5, 2021: Cash-strapped TANGEDCO and the Tamil Nadu state government can save 35,000 crores 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 analysis by research group Climate Risk Horizons.(1)

The report Recipe for Recovery points out that TANGEDCO’s participation in the UDAY scheme in 2017 has failed to revive the discom. The Centre recently approved a bailout package of Rs. 30,230 cr. 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 through the retirement of coal power plants that are over 20 years old. Such plants 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 FGDs and Low NOx burners.

Retiring 3.1 GW of old plants (instead of incurring the capital expenditure to retrofit them will save approximately Rs. 1,670 cr. in avoided costs. 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, will save another 1459 cr. annually (Rs. 7,300 cr. over a 5 year period), as cheaper options are now available.

“These old plants are not on track to meet the 2022 deadline for compliance with the air pollution norms. Rather than incurring 1,600 crores or more on retrofits, it is more economic 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.

Responding to the report, Sundarrajan G of Puvulagin Nanbargal said, “The coal plants in question are responsible for significant pollution in terms of both air emissions and fly ash over the past few decades. Retiring them is the right thing to do environmentally, and as this report shows, will also save Tamil Nadu consumers thousands of crores. The era of coal power for electricity has come to an end - the state government must re-examine the continued construction of coal plants and shelve those that are at an early stage, instead investing in energy efficiency and clean alternatives to meet future demand.”

Apart from retiring old plants, the analysis suggests two other ways that TANGEDCO and the state government can reduce costs:

• Freeze expenditure on early stage under construction plants: the report identifies 3.5 GW of state-owned plants (refer to notes) that are in the early stages of construction – Uppur, Udangudi and Ennore Expansion. Freezing expenditure by halting construction on these plants would save over Rs.26,000 crores. Given the state’s power surplus situation and the cost advantages now enjoyed by renewable energy, CRH’s analysis shows there is no requirement for these new plants, and they will in fact end up worsening state finances if construction were to proceed.

• 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. Expensive power above Rs 4/kWh can be replaced with cheaper power from renewable energy or existing higher efficiency power plants at Rs. 3/kWh or less. Hypothetically, this could generate savings of up to 6,000 crore per annum. This can be done at the end of current contract life, or (where all parties are government entities) early termination of the contract by mutual agreement, given the savings that will be generated across the system. Contracts could also be reconfigured to reward flexible generation through a premium for peaking power supply.

Notes & Contacts:
1) Full report is available at https://climateriskhorizons.com/research/TANGEDCOs-Recipe-for-Recovery.pdf

Harshit Sharma, <harshit.sharma@climateriskhorizons.com> +91 85279 28839

Satheesh L, <satheeshlakshmanan@outlook.com> +91 95004 85385

Sundarrajan G, Puvalagin Nanbargal <info@poovulagu.org> +91 98410 31730

Ashish Fernandes <ashish.fernandes@climateriskhorizons.com> +1 857 288 9357