Power Sector and Climate Change

Technological Instruments to Improve the performance of the Power Sector

Emissions of CO2 from Power Sector

Energy efficiency is a critical element for policies aimed at reducing energy consumption while maintaining or even boosting economic growth. To the extent that increase in technical efficiency lead to reduced energy use per unit of output, higher efficiency means lower energy imports, slower resource depletion, less environmental damage and lower costs per unit of output.

Coal is the most important and abundant fossil fuel in India. Hard coal reserves are estimated at around 206 billion tons, of which 75 billion tons are proven. Lignite reserves stand at around 26 billion tons, of which 90% are proven. With limited reserves of petroleum and natural gas, and the negative perception of nuclear power in the country, coal is expected to continue playing an important role in the Indian energy sector.

Indian coal suffers from high ash content and low heating value. The quest for efficient and economic combustion of low quality coal has led to the development of innovative combustion technologies, which enhance combustion efficiency on the one hand, and reduce harmful emissions on the other.

Raw material available in India should be taken into account while technology transfer, as foreign technology can not absorb Indian coal because of the basic difference in coal characteristics (like ash, moisture, volatile matter and sulphur content)

Therefore, the technology imported leads to problems in terms power generation with the available coal.

Prompt measures are needed for conversion of low transmission network into high transmission networks to reduce the T & D losses and theft. India’s power transmission and system operations are already going through an extensive national restructuring program with evolving state-level measures in parallel. The Power Grid Corporation of India (POWERGRID), India’s national transmission utility, is the main implementing agency of this program.

Over a period of time, POWERGRID will interconnect its regional systems to a national power grid, which can facilitate sharing power with the neighbouring states or countries having surplus power. To encourage private investment in the transmission business, the Central Government enacted the Electricity Law (Amendment) Act in August 1998. This Act provides for state transmission utilities and transmission licensees, and thereby facilitates state power Provisions and private investment in power transmission sector.

Fuel switching options must be explored in order to improve energy efficiency in the power sector. Although, Coal is a major domestic resource that should be exploited, both in terms of national security and social considerations, as well as the price advantage. Though natural gas is an attractive short-term option for the power demand in the country along with coal (the medium and long-term options), but as these fuels are creating major environmental threats in terms of concentration of greenhouse gases, therefore, fuel switching should take place widely, through adoption of zero carbon fuels or least carbon fuel and supporting technologies.

One of the best ways to mitigate climate change in the power sector can be through development and utilization of carbon neutral technologies in terms of renewable sources of energy. So far, renewable sources of energy have accorded a high priority in India. But only thee percent of the total available potential in renewable energy sector has been utilized so far. Though there are many economic and other types of incentives for investing in renewable energy technologies as well as for attracting investment in the power sector, incentives such as 100% depreciation allowance, investment allowances and custom and excise duty exemptions may encourage the large scale promotion of carbon neutral technologies.

Economic Instruments (such as effective market based improvement, taxation of polluting units, pricing structure of coal, designing fiscal policy with economic sensibility) moderate the growth rate of electricity demand and also improve the performance of power sector for greenhouse gas abatement. The need of the hour is a relook into the energy market in India and assess its prevailing ills. The energy market provisions should be an attempt to outline recommendations for better performance of the power sector, which would also entail superior environmental performance.

Command and control mechanisms that impose fiats on environmental performances have not yielded the desired results. Initiatives such as tax imposition on polluting units may help to promote better environmental practices in energy generation. But, proper estimation of the "Optimal" rate of taxation is a complex issue, which on one hand forces the power producers to "clean up" and on the other, does not effect the end consumers adversely, for whom energy is a vital input.

Pricing structure for coal is an important way to, influence the amount of GHGs emitted by the coal based thermal power plants. Coal prices are based on the unit heat value. With this price structure, plants only pay for the heat value and are not interested in other parameters such as the volume or the level of impurities that must be transported (including ash). For the promotion of greater utilization of washed coal, its price should be based on the gross calorific value so that its cost is linked to the level of combustible material in a given volume of coal. This way, the greater utilization of a better quality coal would result in higher efficiencies and the reduction of GHGs.

Power Sector lacks an adequate regulatory framework. There is a need for more fiscal policies with economic sensibility. For example, the Central Pollution Control Board Regulation demands that plants located at least 1000 km away from the mines should use washed coal. The utilization of washed coal promotes efficiency and reduces GHG emissions. This decision makes economic sense since washed coal is lighter than non-washed coal, thus resulting in reduced transport costs. The lower transport costs were found to compensate for the higher price of washed coal in plants that are at least 1000 km away.

The issue of subsidy is a crucial one in the power sector. The energy market, as it exists today, suffers from both high levels of subsidies as well as additional surcharges on power generation by industrial units, thereby distorting the free play of market forces. Subsidies increase fossil fuel consumption through lower prices, which actually results in higher greenhouse gas emissions.

Removal of subsidies has a serious implication on the livelihoods of the masses affected by it. On the other hand, the subsidy levels seem to be too high for the fiscal health of the centre or the state. In this critical situation subsidy removal or easing off can take place if we calculate its impacts properly. There can be following five magnitude that measure the effects of subsidy removal:

At the moment, the power sector in India is on the verge of fundamental and significant changes that have profound implications on environmental management. India is moving from a publicly owned, vertically integrated, monopolistic power system with highly distorted prices for fuels and electricity to a more liberal system with market prices, competition, a greater role for the private sector, and commercial incentives. These changes will affect every aspect of the energy production system: the demand for electricity, the financial viability of all the entities involved, the choice of fuel and technologies, pricing decisions, and the respective roles and relationships among the state, the power sector regulators and fuel suppliers. During this time of transition, it is crucial to go for power sector improvement provisions through technological and economic Instruments described above to protect the environment through abatement of Climate Change and avert threats to public health. In addition, it is essential to take advantage of the opportunities available in the power sector to increase the supply to meet the overwhelmingly increasing demand of electricity.

With the advent of the Kyoto Protocol, the mechanisms of technology transfer for climate change mitigation will multiply, and the soft loans for clean technologies will be easily available. This constitutes a great opportunity for the Indian power sector to acquire the desired technologies and to advance significantly in its climate change mitigation efforts. q

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