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Panel suggests measures to tackle crisis in stressed thermal power projects

Note4students

Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Solutions to revamp India’s power sector


News

Background

  1. The High Level Empowered Committee (HLEC) set up by Government of India in July 2018 came out with its report on stranded thermal power projects.
  2. The Committee has assessed the landscape of these stranded assets and identified the various reasons that have contributed to the current scenario.
  3. This report focused on 34 thermal power stations, totalling to a capacity of 40 gigawatt (GW), which are entirely fuelled by coal and lignite.

Reasons behind Power sector crisis

  1. Institutional challenges related to the issue have contributed to the problem.
  2. The envisaged a capacity addition requirement of 88 GW was surpassed with 99 GW during the corresponding period leading plants to perform below their rated capacities.
  3. Several root causes identified by the HLEC are interconnected with the debt burden of the distribution utilities and the financial stress on banks/financial institutions as well as promoters and bidders.
  4. A significant chunk of the problem has been caused by the erratic coal supply and the uncertainty of coal supplies due to scrapping of mine auctions by the Supreme Court.

Suggested solutions

HLEC has put forth suggestions, most of which are in line with current government policies to help power plants in general and stressed assets in particular.

  • Coal Supply
  1. Coal supply is an inter-ministerial issue, whereby the ministries for coal and railways have been requested to work out mechanisms to address short-term issues of supply.
  2. Linking coal supply to power plant efficiency is a good way to incentivise better, newer and more efficient assets.
  • Shutting inefficient Plants
  1. Old plants operating way past their lifetime are less efficient in resource utilization, have higher emission profiles and are also expensive due to swift recovery of renovation costs that keep adding on to them.
  2. Closing down of old, inefficient thermal power units make for good economics and good environmental sense.
  • Addressing financial risks
  1. Several measures related to power markets to address the financial risks have been strongly recommended by the HLEC.
  2. These include getting NTPC or any other agency to act as an aggregator for power purchases, which can subsequently be sold to distribution utilities.
  3. The idea is not new as Power Finance Corporation (PFC) had recently conducted a tender for procuring 2500 megawatt (MW) of thermal power from stranded assets under specific conditions.
  • Easing Clearances
  1. Many promoters are facing National Company Law Tribunal (NCLT) for defaults, and their assets are also online for sale.
  2. Any new owner of a power plant should not be subjected to these challenges of obtaining clearances and signing agreements again, else the interest to acquire the asset may wane.

Gas-based thermal power: Not on Priority

  1. The talk to revive gas power plants is important, and serves good purpose as natural gas is a relatively cleaner fuel with lesser emissions.
  2. However, gas supply will continue to remain a problem for several reasons.
  3. Priority of supply of natural gas has always been lopsided to fertiliser industry, which uses natural gas as raw material and has a strong government presence and control.
  4. The political economy of gas supply and pricing will be heavily determined by this emerging consumer base as well.
  5. Even if imported, the lack of sufficient LNG storage terminal capacity and subsequent pipeline capacity will ensure that things remain more of the same in the near future.
  6. Therefore, these are mere platitudes unless a strong position is taken on reviving the fortunes of these power stations.

Way Forward

  1. The HLEC has shown that ways can be found to sort out the mess within the thermal power sector for coal fired power plants.
  2. However, the sole focus on coal has meant that gas-based power plants will have to wait for their turn under the sun.
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