Some studies have suggested that early retirement of coal-based generation is a solution to address some concerns in the power sector. According to these studies, age-based retirement of power plants will result in cost and efficiency savings, which accrue from replacing older generation with newer options that are expected to be more efficient and due to circumvented expenses on pollution control equipment. This paper analyses the claimed benefits of such action and compares it against the attendant risks.
It concludes that the estimated savings from such early retirement are not very high. The argument of unviability of installation of pollution control equipment to meet environmental norms also does not apply uniformly to all old plants.
Along with this, these potential savings from early retirement must be weighed against the benefits of the older plants’ capacity value and ability to provide ancillary services. The risks of retiring older capacity aggressively should also be considered, as it may give impetus to fresh coal-based capacity addition. Besides, given economic, operational, and environmental drivers, the older capacity is likely to fade away naturally over the next decade. The amount of coal-based capacity in the pipeline, predominantly from central and state generators is a bigger cause of concern. These possible excessive capacity additions, from pipeline capacity and aggressive early retirement, could result in surplus capacity, resource lock-ins, and stranded investments. Thus, the emphasis on early retirement appears misplaced.
Any decisions regarding capacity additions or retirement must be backed by rigorous modelling-based analysis and consideration of intersectional impacts. In particular, a simplistic age-based criterion for early retirement may prove counter-productive.