FICCI Committee Appeals to PMO Office for Support for Installation of FGD in Operational IPPs &CPPs

The letter asks for granting two-year extension for the installations.

FICCI Power Committee issued the following letter, on Monday, to the Prime Minister office asking for due intervention and support for installation of Flue Gas Desulphurization (FGD) in operational CPPs.

“Requesting urgent intervention & support for installation of Flue Gas Desulphurization (FGD) in operational IPPs & CPPs

At the outset, we would like to express our gratitude for the measures taken by the Government of India amidst the COVID-19 pandemic and the current challenging phase to support the Indian industry and economy. These measures will go a long way in reviving the economy and we would like to assure you that FICCI will put its full efforts to support the various Government measures in tackling the current situation.

We would also like to bring to your kind attention an arising critical situation regarding Ministry of Environment, Forest & Climate Change (MoEF&CC) Notification S.O. 3305(E) dated 7th December 2015, wherein thermal power plants are required to meet new emission standards for Sulphur Dioxide (SOx) and Nitrogen Oxide (NOx). In this regard, the deadline to meet these norms is different for different power plants but all plants are supposed to comply with them by December 2022. In case of Captive Power Plants (CPPs), the deadline was 30th June 2020, and hence require immediate relief.

  1. It is pertinent to note that about 30 months are required to achieve commissioning of FGD aGer having regulatory and financing clarity. The data compiled by Central Electricity Authority (CEA) for all the power plants, Central, State and Independent Power Producers (IPPs) shows that most of the plants would not be able to meet the deadline despite advance efforts having been taken by many, if not most of them.

In this context, the FGD sourcing and supply capacity becomes a critical issue. As you would be aware, major suppliers of FGD equipment are from outside India. In this context, the Ministry of Power (MoP) order requiring prior approval of import of equipment from certain countries, presents an opportunity to manufacture in India and contribute to the ‘Aatmanirbhar Bharat’ objective and also create additional jobs which in the current scenario is welcome. However, as a result, it would take time for Indian manufacturers to ramp up capacity, as well as for IPPs and CPPs to redo the process of tendering and supplier finalisation.

  • In addition to above, severe regulatory and financing bottlenecks to implementation persist, which impact the timelines. A detailed description of such problems is attached herewith for your reference. The most critical ones of these are 1. Regulatory clarity; 2. Return on Equity (RoE); and 3. Compensation mechanism for uncontracted plants. While MoP has issued directions to treat requirement of installation of FGD as change in law, and CERC has passed orders in case of individual petitions approving change in law in principle, these orders are being challenged by Discoms. Without confirmation from Discoms, financing institutions are unwilling to finance FGDs in view of uncertainty about cost recovery. In case of RoE, CERC’s tariff regulation provides for RoE equal to cost of debt. It would be impossible to get equity at prevailing interest rates for debt, and tantamount to an unwarranted penalty on investors who have already invested thousands of crores of equity. Furthermore, for uncontracted plants, many of which are under financial stress, deliberations have still not been concluded regarding how they would be compensated for the FGD costs, e.g., through a levy on merchant sales.

There are also specific difficulties faced by different categories of plants as well as individual plants, as detailed in the attached note.

Therefore, following requests are submitted for your consideration:

A committee may kindly be constituted by Government of India, comprising MoP and MOEFCC, to review the timelines for FGD implementation, via assessment of the requirements and prevailing bottlenecks. This committee may, in a time bound manner, take inputs from stakeholders including IPPs, CPPs, CPSUs, States, regulators, financial institutions and others, and issue the necessary directions for speedy execution

CERC may be directed to issue provisional tariff for power plants implementing FGDs and where commission has approved change in law under the long term PPAs

A mechanism for cost recovery may be implemented for power plants selling power in power exchange or under short term contracts through bidding under DEEP along with extension in time for installation of FGD

An immediate time extension may be granted for installation and commissioning of FGDs by CPP, who may be exempted against any adverse action for non-compliance of the new emission norms in view of the 30th June 2020 deadline.