Making India's power system clean: Retirement of expensive coal plants

Abstract

As India implements its Nationally Determined Contributions (NDC), via an ambitious renewable energy target of 175 GW of renewable energy by 2022, it is faced with an opportunity to further reduce greenhouse gas emissions. This opportunity is provided by the average cost of solar (and wind) energy falling below the variable cost of generating power from many existing coal plants. This indicates that, while other potential uses exist (e.g., making coal plants flexible), such expensive brownfield coal plants could potentially be economically retired today by simply switching to buying power from new solar plants. For example, by switching to a solar plant from a sample 5-year coal plant, the savings can be 33.90% in net present value terms. Further, while the savings on energy procurement is obvious, there could also be savings on committed contractual obligations on paying fixed costs, via a process called securitization. For example, using cashflow analysis, we show that retiring a sample 5-year old coal plant can save an additional 31.57% in value. We also discuss plausible regulatory changes, for which there are precedents in India and elsewhere, that would enable this cost-effective transition to a deeper penetration of renewable energy via retirement of expensive coal plants.