September 17, 2007 (livemint.com) New Delhi: Indian power generation firms such as NTPC Ltd stand to benefit from a decision by the United Nations Clean Development Mechanism (CDM) Board to allow efficient coal-based power plants to benefit from the carbon trading scheme under the Kyoto Protocol.
In natural gas-starved India, coal is the preferred fuel for power generation firms, and several companies are investing in new power plants to feed the needs of an economy that grew at 9.4% in 2006-07 and 9.3% in the first three months of 2007-08.
“This will be very, very beneficial to India, looking at the current expansion in the (power) sector,” said Ram Babu, managing director, CantorCO2e India, a London-based firm which offers financial services to environmental and energy markets worldwide.
This is the first time that the UN Board, which has been examining the issue for more than a year, has allowed an industry that consumes fossil fuels to earn carbon credits. This was approved worldwide on the basis of documents prepared by Perspectives Climate Change GmbH, Hamburg, Germany, for a thermal power project promoted by NTPC in India.
The Kyoto Protocol allows projects in developing countries that reduce greenhouse gas emissions to earn carbon credits. The reduction of one tonne of carbon dioxide earns one credit. These credits are usually bought by industrialized countries which have committed to reduction of greenhouse gas emissions to mitigate global warming.
However, only those thermal power plants that use clean and efficient technologies will earn credits.
“Super-critical thermal power plants are about 40-42% more efficient in converting coal to electricity, whereas older plants have 35% efficiency,” said Ashutosh Pandey of Emergent Ventures India Ltd, a consulting firm for CDM projects.
Pandey added his firm is involved in preparing the documents for a power project that was eligible to earn carbon credits, but declined to name the company.
Companies such as Reliance Energy Ltd, NTPC and Indian Farmers Fertilizer Coop. Ltd (Iffco) are looking to set up power plants.
NTPC is setting up four power plants, all above 660MW and all using super-critical technology.
“We will build a 1,320MW power plant in Chhattisgarh for which we hope to earn about 750,000 carbon credits annually,” said N.K. Verma, who is in charge of Iffco’s carbon programme.
“We have a 4,000MW ultra mega project at Sasan and another 1,200MW project in Uttar Pradesh, and we will apply for carbon credits for all of them,” added Rahul Kuthiala, additional vice-president, Reliance Energy.
CantorCo2e India’s Babu said companies were talking about adding power generation capacity of 10,000MW using “super-critical technology”. “Even if we consider a 10% increase in efficiency, we are looking 35 million credits over 10 years, which would mean potential revenue of about €350 million (Rs1,963.5 crore),” he added.
The UN body’s decision comes as a boon to India and China. It allows only power plants that supply electricity to a grid and that operate in countries where more than half the power is generated by coal-based plants to participate in the carbon trading mechanism. Thus, countries such as Pakistan and Brazil will not benefit from it.
Babu said that in some way, the decision provided an incentive to companies burning fossil fuel. “Developing countries, which have shifted to renewable energy, in a way are getting penalized,” he added.
However, the CDM Board has ensured safeguards to prevent thermal power projects from inadvertently prolonging the use of fossil fuels or competing against renewable sources of energy by several mechanisms, including a phase-out clause that limits the number of carbon credits they can earn.
“Fossil fuels will remain a big part of the world’s energy mix for decades to come. It’s essential that we burn that fuel as efficiently as possible,” said Hans Jürgen Stehr, chair of the CDM executive board.