Policy design allows dirty fuels like pet coke and furnace oil to flourish
Policy is perverse. Really unthinkably so. I said this before. I want to repeat and expand my reasons why. Earlier, I wrote this in the context of how policy ended up promoting the use of dirty and extremely polluting fuels in the region surrounding Delhi, even as we all shouted and howled to get rid of deadly air pollution. But this is not the full extent of the perversity of policy. There is more.
But first a quick recap. Last few months, concerned about growing air pollution in our cities, I was looking at possible sources of emissions in the air. Our investigations revealed that extremely high-sulphur fuel—both furnace oil and pet coke—was being widely used in the National Capital Region (NCR). Why? Because it was cheaper than the available alternatives, natural gas and electricity. Policy ensured this happened. While natural gas was taxed, furnace oil was not. Pet coke, which has over 70,000 ppm of sulphur as against 50 ppm in diesel, is absolutely free of any control on its quality, use and import. It is business of pollution, as usual.
Then we also found that Delhi had issued a notification on what were acceptable fuels, thus, technically banning the use of high-sulphur fuels in its territory. But this was not done for NCR, so the use of high-sulphur fuels there polluted the common airshed. These findings are now being deliberated by the ever-reluctant government.
But this, as I said, is not all we found. This region within a radius of 100 km from Delhi, which is its common airshed, has some 8,588 MW of installed capacity of coal and gas power plants. This is enough to power its industries. And while coal-based plants are much more polluting than natural gas-based plants, they are definitely cleaner than furnace oil or pet coke. Furthermore, it is “technically” possible and even “feasible” to control emissions from the five coal power plants in Delhi, Dadri in Uttar Pradesh and Jhajjar in Haryana. Then what’s the problem?
The fact is these power plants are working at some 20 per cent of their installed capacity. Yes, you read me right. There is so much installed capacity in the region, that we should have had no electricity failure and certainly no need to use dirty fuels. This is why we need to understand how policy is driving us towards pollution.
Let’s start with coal-based power, which is better than furnace oil or pet coke. There is some 5,345 MW of installed capacity in the immediate vicinity of Delhi. Of this, only 19 per cent is being used. What is worst is that the oldest and the most polluting of these plants are being run. Why? Because under the current merit order dispatch policy of the government, the cheapest power is what is first supplied. This means the older plants, which have depreciated their capital, have the lowest fixed costs. This is what sells.
The station heat rate (SHR) is a good way to know the pollution potential of power plants. It is the measure of efficiency as the lowest heat rate means less amount of fuel consumed to get the same amount of energy. The SHR of Delhi’s Badarpur plant (over 30-year vintage but supposedly refurbished) is as high as 2,750 kCal/kWh; that of Dadri 1 (also close to 20 years old) is 2,450 kCal/kWh. Against this, the SHR of three newer coal-based power plants—Dadri phase 2, Aravalli Power of NTPC and China Light and Power, both in Jhajjar—is in the range of 2,300 kCal/kWh. But under the current policy, there is no advantage to cleaner, more efficient plants. Even if these burn less coal and emit less pollution, their fixed costs are marginally higher and so these plants are not operated.
First, dirtier furnace oil and pet coke get the advantage over cleaner power plants. Secondly, dirtier coal power gets the advantage over cleaner coal power. Thirdly, policy is blind enough to allow for incentives to dirtier coal against cleaner natural gas. This is really the race to the bottom.
Now look at the SHR of natural gas-based Bawana plant in Delhi. Against Badarpur’s 2,750 kCal/kWh, Bawana plant’s SHR is 1,845 kCal/kWh. This makes it much better than Badarpur and even the cleanest coal-based power plant. Even in terms of emission standards, gas plants have lower pollution—no particulates; negligible sulphur oxides (SOx) and low nitrogen oxides (NOx).
Yet the Bawana plant is hardly operational. Either gas is not available or the price is marginally higher or there is just so much dirty fuel available that gas does not stand a chance. Policy is designed for this. Furnace oil or pet coke is not taxed: imports are not charged; there is no coal cess on pet coke or any state VAT or tax. As against this, every possible tax is imposed on gas. The dirtier the fuel, the more the incentives.
Now tell me policy is not perverse. Tell me that in this situation, your lungs have a chance to survive. Tell me I am wrong. Please.
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