US Bank Forces Indian Firm to Build 250-MW Solar and Wind Power Plant to Offset Coal Emissions

3 by Mridul Chadha on July 18, 2010

One of India's leading power generation companies, Reliance Power, has agreed to set up a 250 MW solar-wind energy power plant in exchange of a $600 million loan from the US Export-Import Bank.

The power plant which is expected to come up in the western coastal states of Gujarat and Maharashtra would be a mix of solar and wind farms. The plant would be set up in accordance to an agreement reached between the US Ex-Im Bank which is required to review the environmental impact including the carbon footprint of the project they provide financial help for.

Reliance Power will set up a 3,960 MW coal-fired power plant at Sasan, Madhya Pradesh with an investment of more than $4 billion. The Ex-Im Bank is required to study the environmental impacts of the projects they are going to finance before approving the loans. Since the coal-fired power plant is an ultra-mega power project the carbon emissions from it will be highly significant.

Reliance Industries, then, not only had to agree to to cap the carbon emissions per kWh to 850 grams but also build a 250 MW power plant to offset at least a part of the plant's carbon footprint. The deal would also help a Wisconsin based company, Bacyrus International which will provide mining equipment to Reliance Power. The deal would save about 984 jobs in 13 states across the United States.

Coal-fired vs. Renewable-based Power Plants

Ultra-mega power projects are the need of the hour for India as it struggles to keep its economy on the path of accelerated growth. Since these power plants work at extremely high temperatures as compared to conventional coal-fired power plants their efficiency is higher, that is, more power for even unit of coal used. Additionally, coal is among the cheapest sources of power generation in India.

Even though the size of the renewable energy power plant is less then ten percent of the coal-fired power plant, it has several advantages of its own.The company would be free of forge Power Purchase Agreements with transmission companies and power exchanges. This would enable the company to charge a premium for power generated from the solar-wind power plant.

Coal reserves in India are of poor quality and are in short supply and many companies are looking for imported coal. However, the Indian government, which maintains are stronghold over coal mining and coal export-import, would avoid becoming dependent on foreign fuel supplies. On the other hand, fuel availability for a renewable energy power plant is infinite while the fuel cost is nil.

And while the coal-fired power plant would attract taxes, including the coal tax, the renewable energy power plant is likely to earn tax incentives from the government. The coal-fired power plant would also be required to meet efficiency standards as the government would attempt to honor its commitment to reduce the country's carbon intensity.

The coal-fired power plant could also be roped in for the energy efficiency certificate scheme which would work in a manner similar to the cap-and-trade scheme.

All in all, the setting up of a renewable energy power plant of such a large size would bring benefits not only to the environment but also to the company. This is a significant development for international energy cooperation as well given that the United States had opposed the financing of coal-fired power plants in developing countries.

Given the fuel supply constraints, tax liabilities for the coal-fired power plant and the tax benefits and flexibility power sale, the tariffs from renewable energy power plant could become more attractive in the long term.

The views presented in the above article are author’s personal views and do not represent those of TERI/TERI University where the author is currently pursuing a Master’s degree.