Changing Energy Mix

Overview of the power generation segment

The power generation segment is witnessing a major shift with renewables replacing thermal power in the installed capa­city mix at a fast pace. As of April 2022, the co­untry’s installed capacity stood at 401 GW with coal- and lignite-based plants (210,699.5 MW) accounting for a major share of 52 per cent and renewables (111,399 MW) accounting for a share of 28 per cent. The share of renewables comes to nearly 40 per cent upon inclusion of large hydro (46,722.52 MW). This is significant given that just a few years ago, in Mar­ch 2015, the share of coal in the installed capacity mix was 68 per cent vis-à-vis renewables’ sha­re of 14 per cent (and 29 per cent upon in­clu­ding large hydro). Going forward, the pace of energy transition is only expected to accelerate given the central government’s focus on me­eting its climate change targets. Indian In­fra­structure provides an overview of the country’s power generation segment…

Capacity addition and generation

Capacity addition from conventional sour­ces (thermal, hydro and gas) stood at 4,878 MW in 2021-22, much lower than the target of 11,478 MW. About 4,485 MW was added by thermal power plants (TPPs) and 393 MW was added by hydroelectric plants (HEPs) during the year. Conventional capacity addition has considerably slowed down in recent years with g­enerators as well as lenders moving away from coal/gas-based projects owing to environmental concerns. The conventional capacity addition in the past two years has also been lower vis-à-vis targets – 5,436 MW in 2020-21 ag­ainst a target of 11,197 MW and 7,065 MW in 2019-20 against a target of 12,186 MW.

Meanwhile, renewable energy capacity ad­di­tion has continued to grow apace and stood at 14,076.95 MW during 2021-22. Of the total ca­pa­­city addition, about 90.6 per cent was ac­c­o­unted for by solar power (with 10 GW by gr­o­u­nd-mounted solar, 2.2 GW by rooftop solar, and 407 MW by off-grid solar). The remaining was acco­unted for by wind with a 7.9 per cent share in capacity addition (1.1 GW), followed by biomass with a 1 per cent share (142 MW) and sm­all hydro with a 0.5 per cent share (or 63.75 MW). In terms of power generation, the total generation stood at nearly 1,500 BUs in 2021-22 in­cluding generation from renewables and im­por­ts from Bhutan. While thermal sources ac­counted for 74.3 per cent of the total, renewables including large hydro accounted for a share of 22 per cent and the rest was contributed by nuclear (3.1 per cent) and imports from Bhutan (0.5 per cent).

Key developments

In recent months, the domestic coal shortage with surging power demand has dominated the headlines. This has been mostly due to an increase in power demand on account of post-pandemic demand recovery, heatwaves witnessed in several parts of the country, inadequate coal availability and logistical constraints on coal transportation. The price of imported coal has also seen a sharp spike owing to supply-side disruptions due to the Russia-Ukraine conflict. In order to prevent the power crisis from escalating further, the central government announced a number of policy and regulatory measures in April 2022. These include the Ministry of Power’s (MoP) directives to gencos and independent power producers (IPPs) to blend up to 15 per cent imported coal, and to imported coal-based power plants to produce at full capacity. Further, it has invoked Section 11 of the Electricity Act and advised the states to allow the price of coal to be a pass-through. In addition, the MoP has directed the Power Fi­n­ance Corporation and REC Limited to take necessary action to arrange short-term loans for a period of six months with adequate safeguards, and operationalise imported coal-bas­ed plants that are under stress or under the National Company Law Tribunal.

In a separate development, in March 2022, the Cabinet Committee on Economic Aff­airs extended the time limit for 10 power projects, each with a capacity of over 1,000 MW, by 36 months in order to furnish the documents required for becoming certified “mega” projects so as to avail of tax benefits and bid for tenders regarding electricity supply. Earlier, the deadline for such power projects was March 31, 2022, after which the projects would have lost their bank guarantees. The move is expected to benefit companies such as GMR, Essar, Lanco and Torrent.

In view of increasing renewable energy ca­pacity, the government is looking at promoting storage technologies. In March 2022, the MoP notified the Guidelines for Procure­me­nt and Utilisation of BESS as part of Ge­ne­ration, Transmission and Distribution ass­ets, along with Ancillary Services. The objectives of these gui­de­lines are to facilitate the procurement of BESSs, as part of individual renewable power projects or separately, to address variability and firm up power supply from renewable energy projects.

In another positive development for the sector, the Andhra Pradesh High Court upheld the sanctity of PPAs between developers and discoms in an order dated March 15, 2022, on the issue of PPAs being renegotiated by the Andhra Pradesh government citing poor discom health. The high court stated that the ter­ms of a PPA cannot be altered and that the tariff cannot be renegotiated unilaterally. The or­der overturns the previous order, dated Sep­tember 24, 2019, which was passed by a single judge bench of the Andhra Pradesh High Court, permitting renewable energy developers to pay an interim tariff that was half the rate agreed to in their contracts for all future and pending bills.

Further, in November 2021, the MoP iss­ued new rules allowing automatic pass-through of costs upon occurrence of a ch­ange in law event. The automatic pass-th­rough will be computed based on a suita­ble formula app­roved by the regulatory commission. The pass-through in costs and tariff will later be verified by the commissions.

Update on compliance with environmental norms

As per the Central Electricity Authority (CEA), flue gas desulphurisation (FGD) systems have been planned for 439 units, aggregating 168.9 GW, to reduce SOx emissions. As of December 2021, bids have been awarded for 157 units aggregating 69,260 MW in capacity. Apart from this, a notice inviting tender has been issued for 132,167 MW of capacity or 325 units. Currently, FGD systems have been commissioned across 20 units aggregating 8,290 MW in capacity.

As per revised timelines for meeting emission norms, TPPs have been categorised into th­ree categories. Category A comprises TPPs within a 10 km radius of the NCR or cities that have a million-plus population, and would be required to meet the emission norms by Dec­ember 2022. Category B comprises TPPs within a 10 km radius of critically polluted areas or non-attainment cities, which will have to meet the norms by December 2023. Category C will constitute all other plants, which have been given extension till December 2024. TPPs declared to retire before December 31, 2025 are not required to meet the specified norms in case such plants submit an undertaking to the CPCB and the CEA for exemption on grounds of retirement. A task force constituted by the CPCB has categorised 596 coal-based units into the three categories. Accordingly, 79 coal-based units (13.3 per cent) fall under Category A, 68 units (11.4 per cent) fall under Category B and 449 units (75.3 per cent) fall under Category C. As a result, nearly 75 per cent of the TPPs in India are not liable to meet the emission norms before 2024.

For the control of particulate matter (PM) emissions, most TPPs have already installed electrostatic precipitators (ESPs) since Indian coal has a high ash content. However, upgraded systems could be required for the existing projects. In addition, the environment ministry’s de­ci­sion to do away with coal washing makes it more important for TPPs to invest in efficient PM control technologies. A detailed phasing proposal outlining the plan of action for the augmentation of ESPs for PM control up to 2024 has been prepared by the CEA. As of June 2021, ESP im­pleme­nta­tion plans are available for 222 units aggregating 64.5 GW in capacity.

Challenges and the way forward

Coal shortages and outstanding dues from discoms continue to weigh down the power generation segment’s growth. As of June 2022, the outstanding amount owed by discoms to IPPs stood at Rs 1,017 billion, an increase of 4 per cent over the Rs 978 billion in June 2021 (as per data from PRAAPTI portal). While the central government has taken adequate measures to address the current crisis, a sustainable solution needs to be looked at to resolve these issues and prevent the recurrence of such crises in future.

Further, with the integration of renewable energy into the grid, TPPs need to incorporate flexibility in their operations. Currently, the TPP fleet of NTPC Limited, the country’s lar­gest generator, can flex up to 55 per cent and some of its power plants have tried up to 40 per cent as well, but the TPP fleet of state gencos is still operating at 70-75 per cent. The central government is taking steps to en­sure that almost the entire coal-based power plant fleet is able to flex up to 40 per cent in the next two-three years.

In terms of targets, the country’s install­ed power capacity is expected to grow significantly to 810 GW by 2030 including at least 500 GW of non-fossil fuel-based capacity by 2030. In order to ensure a smooth energy transition, the existing TPP fleet will be required to play a balancing role to maintain grid stability and security going forward.

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