Voices Thursday, May 28, 2015 - 05:30
Image Courtesy: IndiaResists.com In October 2013, the police disrupted a black flag demonstration by fishermen and farmers protesting the 4000MW Cheyyur Ultra Mega Power Plant (UMPP) proposed along the coast in Tamil Nadu's Kanchipuram district. Referring to the heavy-handed state action against anti-nuclear protestors in Koodankulam, the police openly threatened to harass and foist cases against villagers if they did not withdraw their protest and give in quietly. “It's a central government project. The Government has decided. There is nothing you can do to stop it now,” the police inspector explained. Now, nearly 20 months later, the imported coal project that promised to bring in cheap electricity by harnessing economies of scale and considerable Government sops is a non-starter. A report prepared by US-based Institute of Energy Economics and Financial Analysis has run the numbers for this project to conclude that if the project is to attract private investment, the tariff rates will be way too high for cash-strapped electricity utilities to purchase. For the project to make investment sense the minimum tariff in the plant's first year of operation – i.e. 2021 --  would need to be Rs 4.93 per kWh (unit). That is up to 5 times higher than the power purchase agreements for other UMPPs. Over its 40 year life, the tariff would escalate rapidly and average about Rs 5.95 per unit of electricity. A wise electricity planner would abandon this project, and invest time and energy in working out alternatives. This report has immediate and specific relevance for Tamil Nadu. But other state utilities banking on large coal and imported coal projects too may have lessons to learn from this analysis. Last January, all private companies that expressed initial interest in the Cheyyur project withdrew from the race prompting the Government of India to scrap this round of bidding. The Government has said it will revise the bidding guidelines to make UMPPs more attractive for private investors. However, any such move will pervert the government's policy objective of providing affordable power. Simply put, in the case of Cheyyur UMPP, what's good for private investors will be bad for ratepayers, taxpayers, state electricity boards and the Government, the report warns. If commissioned, Cheyyur will be bad news particularly for Tamil Nadu. As lead utility in this project, TANGEDCO will be forced to purchase 40 percent or 1600 MW of the total electricity generated. A series of reform measures imposed on TANGEDCO has already pushed this utility deeply into the red. With losses of Rs 14,000 crores, TANGEDCO already avails of hefty subsidies and bailout packages to stay afloat. The last tariff hike in the state was in December 2014, when electricity rates were increased by between 40 paisa and 115 paisa across consumer classes. Ruling party politicians hate tariff hikes; it makes them unpopular among voters. So they either  dip into their tax revenue to bail out the utility, or end up subsidising a large chunk of consumers. In Tamil Nadu, the fare hike for domestic connections with less than 500 units (bimonthly consumption) was fully absorbed by the state government. Agricultural connections remain unmetered. High-end domestic users may not mean much in terms of electoral results. But industrial and commercial users can indirectly but materially affect political outcomes. If businesses decide to leave the state in search of affordable and more reliable electricity, the state's growth objectives can be hurt. Imported coal: Unviable Cheyyur's projected tariff is far higher than the rates agreed for four other UMPPs, namely Reliance Sasan, Tata Mundra, Reliance Tilaiya and Reliance Krishnapatnam. Of these, the Krishnapatnam and Mundra are based on imported coal. The Mundra agreement is pegged at Rs 2.26 per unit over 25 years, and Krishnapatnam at Rs 2.33. Comparing these rates to Cheyyur's Rs 5.95 per unit levelised tariff is not wholly fair as it makes it appear as if Mundra and Krishnapatnam are viable businesses at their agreed rates. That is not the case. Both projects are currently embroiled in intense conflicts over tariff and Krishnapatnam has been a non-starter due to this. For their respective lead utilities – Gujarat and Andhra Pradesh for Mundra and Krishnapatnam respectively  – the projects have generated more trouble than electricity. Imported coal prices have nearly halved since the time Power Purchase Agreements were negotiated for these two projects. But both UMPPs remain mired in tariff trouble. For Cheyyur, the tariffs have been estimated assuming the prevailing price of $65 for imported coal. Currently, imported coal prices are at a historic low having fallen from a high of $120 four years ago. Coal prices represent 55 percent of the total running costs of any thermal plant. However, even if coal prices reduce further, the tariff rates will remain high enough to place an upward pressure on overall electricity rates. On the other hand, if coal prices increase, the tariff levels will increase even further. Indian Coal: No Better At $25 per ton, Indian coal is less than half the price of imported coal. But even at this price, Indian coal is unlikely to make Cheyyur viable. For one, Indian coal has a lower calorific value than many of the imported varieties. So more coal would have to be burnt to generate each unit of electricity. Second, Indian coal has a far higher ash content. The Cheyyur plant expects to generate 4000 to 5000 tonnes of ash daily. This ash is to be disposed in a 200 acre pond. Even this seemingly large area will not last the lifetime of this plant. If this plant were to be run on Indian coal, between 8000 and 16000 tonnes of ash will be generated daily. This will necessitate the acquisition of two to four times additional land for handling ash. In Cheyyur's fertile and water-rich agrarian landscape, such a proposition will add expense and immense political heartburn to the state government. Third, the coal would have to be transported at least 1000 km from mines in Central India to this location. The erratic nature of production in Indian coal mines, the bottlenecks in railroad infrastructure and the shortage of railway rakes add to the risks faced by plants run on Indian coal. Cheaper Alternatives IEEFA's tariff estimates are conservative on several counts. The authors assume that the project will commence commercial production in 2021. For this to happen, construction will have to begin in 2016. Any delay will translate into an increase in capital costs. As things stand, the National Green Tribunal has issued an injunction against finalising any bids for the project. In any case, the bidding process stands cancelled after all prospective bidders withdrew earlier this year. Land acquisition is contentious and time-consuming. This process has commenced but not been completed for lands for the power plant, ash pond and port. For critical infrastructure like roads, railway linkage and coal conveyor corridor, the process has not even commenced. Given these factors, it is safe to expect that if at all it happens, the project will be considerably delayed. Even in an impossibly ideal world, Cheyyur is not expected to yield electricity before 2021. In five years, much will change in the technology and affordability of generation and storage of wind and solar energy. Already, these renewables are approaching grid parity with coal. Better still, they do not have the associated baggage of hostility by host communities nor the recurring fuel charges. Solar, in particular, has a specific advantage for Tamil Nadu. While the state has sufficient baseload capacity to take care of routine power consumption, it faces a substantial deficit during peak hours. During these times, it purchases electricity from merchant power plants at Rs 12 to Rs 15 per unit. Demand peaks are usually contributed by domestic consumers who have periods of intense consumption during the morning hours before setting off to work or school, and in the evenings. This load is particularly amenable to being met using decentralised solar units. Cheyyur, because it is a base- and not peak-load generating station, will not help in flattening these peaks. Given the uncertainties, Cheyyur cannot at this point be seen as a part of Tamil Nadu's intervention to address its energy needs. Nityanand Jayaraman is a writer and researcher based in Chennai. He investigates and reports on corporate abuses of environment and human rights, and is part of an anti-corporate collective called Vettiver Koottamaippu (Collective). NOTE: The IEEFA report can be downloaded from http://ieefa.org/proposed-power-plant-in-tamil-nadu-india-is-too-expensive/ Disclaimer: The opinions expressed in this articles are the personal opinions of the author. The News Minute is not responsible for the accuracy, completeness, suitability or validity of any information in this article. The information, facts or opinions appearing in this article do not reflect the views of The News Minute and The News Minute does not assume any liability on the same.
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