Maharashtra Can Save 75000 Crore By Shifting To Green Energy

New research suggests that there are several win-win measures that the state government and the discom MSEDCL can take to accelerate the energy transition while also delivering public benefits in terms of lower priced electricity, reduced air pollution and climate impacts. 

 

Maharashtra, like the rest of India, is already facing the financial impacts of a changing climate. In 2019, the state saw flood events that caused the loss of over 945 million ha. of crops[1] and the loss of at least 377 lives, with Mumbai alone hit by five “extreme rainfall” days.[2] Even as hundreds of thousands were displaced by floods in the western part of the state in 2019, the regions of Vidarbha and Marathwada were in the midst of a severe drought.[3] In the last five years, Mumbai has had three near-brushes with cyclones.[4] The cumulative financial impact from loss of life, property and economic disruptions is undermining the economic and social development of the state.[5] To make matters worse, the state’s budget has now been stretched thin by the Covid-19 pandemic.

 

New analysis from research group Climate Risk Horizons suggests that the state government can save thousands of crores over the next few years 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.

 

Each of these measures will generate savings, which 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).

 

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, MAHAGENCO has made little progress on installing pollution control equipment on its older plants, of which several are in pollution hotspots 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 capital expenditure to retrofit them will save approximately ₹ 2,000 cr. in avoided costs. The cost of electricity from these units is far more expensive than recent competitive tariffs for renewable energy. Replacing the scheduled generation from these old units with cheaper renewable electricity will save about ₹1,600 cr. annually (₹ 8,000 cr. over a 5 year period) in terms of lower power purchase costs.

 

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. Maharashtra’s coal fleet has been running below 55% Plant Load Factor 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.

 

Apart from retiring old plants, Climate Risk Horizons 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 (and consumers) 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 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.

 

The Covid-19 pandemic has hit state finances hard. 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.