Indian coal utilities seek state funds or tariff hike to cut emissions

31 July 2017

Indian power companies are seeking billions of dollars of federal funding to retrofit coal-fired plants to cut emissions, saying hefty tariff increases would otherwise be needed to pay for the technology, according to internal documents.

Private companies such as Reliance Power Ltd, Adani Power Ltd and GMR and state-run NTPC Ltd, have also asked for an extension to a December deadline to meet the new pollution standards.

The government, which has been pushing a clean energy campaign hard, has given no indication it would be willing to fork out the money for the new technology, which the private companies estimate to cost as much as $38 billion, potentially setting up a confrontation with the industry.

Thermal power companies’ account for 80% of all industrial emissions of particulate matter, sulphur and nitrous oxides in India, and their slowness in complying with new standards shows the difficulties India faces in cleaning up its air, among the most polluted in the world.

The power producers, who account for the second-biggest portion of India’s $150 billion in bad loans after the steel industry, have sought access to the more than $4 billion National Clean Energy Fund to help install cleaner technology, according to letters to the government reviewed by Reuters.

The upgrades are needed to meet stringent rules set out by the environment ministry in 2015 to cut emissions that cause lung diseases, acid rain and smog. Top producer NTPC said in a letter dated 26 February 2016, that it needed about $8 billion to upgrade equipment at its 28 coal-fired plants across the country to comply with the rules.

Installing the new technology would raise the cost of production and lead to an increase in tariffs ranging from about Rs 0.50 ($0.0078) to Rs 1.25 ($0.0195) per unit, the Association of Power Producers, which is lobbying for the private firms, said in a letter to the government.

The average power tariff in India is around Rs5 per unit.

“This increase in the cost of power would have severe impact on the finances of the distribution utilities and collateral impact on the lenders,” the association warned, referring to companies that buy power from producers and distribute it to industrial and domestic consumers.

One producer, Talwandi Sabo Power Ltd (TSPL), a unit of the Vedanta Group, told Reuters it had petitioned the regulator in the northern state of Punjab to pass on the costs of the equipment installation to the power purchaser, Punjab State Power Corporation.

Adani Power said it would implement emission-cutting equipment in accordance with schedule finalised by the government. Increasing power tariffs would reverse gains made by Prime Minister Narendra Modi’s government to reduce costs and spur economic growth, one of the achievements it has touted in its three years in power.

A source familiar with the discussions said there was no precedent for such federal funding for power firms. “Even if funding were to be given, it is difficult to decide how we allocate such funds,” the source said.

Around 78% of generated power in India comes from coal-fired plants, making it one of the biggest users of the dirty but cheap fuel globally. Coal-burning plants also contribute to deadly particulate matter in the atmosphere that cause lung diseases.

While federal funding seems unlikely, the government could be more willing to consider an extension of the deadline for compliance with the regulations, officials say.

“We have referred to the ministry of environment pointing out the difficulties. It has been explained how much it will take to comply, including the technology issues,” Anil Kumar Bhalla, the top official at the power ministry, told Reuters.

Most power plants have yet to meet the new emission guidelines, the Central Electricity Authority said in May, suggesting the environment ministry extend the deadline on sulphur dioxide emissions standards by as many as six years.

NTPC, in particular, is worried that if it fails to meet the deadline, it would affect its prospects to raise international funds because they are tied to meeting environmental standards.

“Even in the existing loans which we are having, in case of non-compliance of environment norms, NTPC will be declared a defaulter which may have serious repercussions for the company,” it said in a letter to the environment ministry, making the case for an extension.

The environment ministry said no formal discussions had taken place about reviewing the December deadline. But officials acknowledged it did not expect all the power producers to be compliant with the new standards.

“If you are asking if everybody will become compliant in December 2017, it doesn’t happen that way,” said a top environment ministry official who did not want to be identified.

Source-Reuters