Impact of India's power purchase agreements on electricity sector decarbonization

Abstract

A large number of Indian thermal power plants are tied under power purchase agreements with distribution companies. However, the existing energy models do not account for these ‘take or pay’ contracts for investigating climate policies. In this context, this paper investigates the impact of these power purchase agreements on power sector operations, cost of electricity and emissions from the Indian power sector. An optimization model was developed for this study with 620 coal, 239 gas, 21 nuclear and 686 hydro units with technology and operational characteristics to analyze electricity dispatch for power sector. The operations of thermal power plants were analyzed with and without power purchase agreements, and low carbon policy scenario. The scenarios are compared for power plant operations, cost of electricity, stranded assets, and emissions. The results show that there is a significant cost advantage for plants covered under power purchase agreements which favors the operations of older inefficient power plants in baseline scenarios. In addition, the representation of power purchase agreements raises the cost of electricity by 26 percent. A change in operating strategy from least cost to least emissions with a lower demand growth scenario can mitigate 24 percent emissions. The cost of carbon abatement is 268–277 USD/tonne for policy scenarios. Options like renegotiation of power purchase agreements can be considered to mitigate emissions.