Coal power plants: early retirement?
18 January 2024 n
Published in: Business Recorder
Recently, a conference was held in Islamabad on the proposal of “Early Retirement of Coal Power Plants”. Those who are aware of Pakistan’s energy problems went into a shock to hear the proposal. We have hardly begun to start using coal power plants. And now these signals and sounds of early retirement. This is like asking a young recruit to retire or think about retiring.
Reportedly, IFIs (international financial institutions) have financed the conference. Asian Development Bank (ADB) has been negotiating with Indonesia for a similar proposal. However, Indonesia is in totally different situation than Pakistan is.
It is a rich and energy abundant country and has many choices. It is one of the largest exporters of coal. Pakistan is a wretched poor country suffering from energy deficit, high inflation and circular debt, having barely escaped financial default. It is highly inappropriate to initiate such proposals in such circumstances. It reflects either ignorance, or simple insensitivity, many people I have spoken to, have said so.
Negotiations have been going on among Indonesia and IFIs for early retirement of one or more coal power plants. However, these have been in a larger context of a NetZero programme, requiring 20 billion USD of financial assistance under which Indonesia would implement a variety of smart energy programme.
The proposal has not been accepted by the JETP (Just Energy Transition Programme) negotiators. The response of the latter has been in negative. They said that they would rather finance Renewable energy programmes than financing early retirement of coal power plants. It should be noted that the plants under consideration in Indonesia are quite old; more than 10 years.
The Indonesian government’s response has been equally terse. IESR (Institute of Essential Services Reforms) of Indonesia reported thus on November 23, 2023: “Indonesia will not put the early retirement of coal plants at the forefront of its emission reduction ambitions and instead will focus more on controlling emissions from coal plants, which will remain operational until the end of their operational life spans, the government said.” Both responses appear to be appropriate rejecting the Early Retirement proposal.
Apart from undesirability and inappropriateness of the early retirement proposal, it is not cheap. It costs precious money, which can be diverted to much better and paying projects (in environmental and climate terms); paying off debt and present value of equity holders and present value of the losses Pakistan would suffer in having to accept more expensive energy choices.
Most of the proponents may be ignoring the last item — the government of Pakistan. If they thought about it, they would not have proposed their proposal. They are probably thinking of concessions from financiers and equity holders as well. And for Pakistan, they may be thinking of reallocating some finances of other budgets. Given Pakistan’s conditions, it is a non-starter and highly inappropriate and untimely.
What might have impelled the proponents to propose the early retirement of coal power plants may be the current financial issues of payables and receivables of imported coal power plants? Reportedly, GoP has not been able to finance the import of coal for the imported coal power plants and CPPA-G (central power purchasing agency-guaranteed) has been levying capacity charges due to the consequent non-supply. The matter has to be resolved. Also earlier, the imported coal power plants could not run due to very high international coal prices.
However, there are negotiations among stakeholders underway for converting the imported coal power plants to the local Thar coal. The government of Pakistan has approved a rail track project, which would enable transport of Thar coal to the North and South of the country.
It is hoped that this would solve both the technical and financial problems of these power plants. The more desirable response could be to assist Pakistan in this endeavor. This would have enabled Pakistan to finance improvements in the energy sector (T&D projects), which would enable it to install renewable energy projects. The latter would have been the right approach, which would have gradually reduced the share of fossil energy in its energy portfolio. This is what JETP and others are arguing as well.
But why target Pakistan in the first place. Next door, India is operating more than 200 GW of coal power plants and intends to add more than 80GW by 2031-32(www.livemint.com, India). What impact would reduction of 2-3 power plants in Pakistan’s power generation capacity make to the global or even regional balance of Climate equations? Why disturb Pakistan and create more problems for it?
Concluding, it would be wiser to utilize international financial resources to more useful ends and schemes. Resources are limited. Committed international multilateral and bilateral financing has not been provided. These have been limited to just words. These are our sentiments. It is hoped that IFIs would be fair and would not initiate and support project ideas, which may create unnecessary uncertainties.
