Emission control equipment orders to finally kick start!
INR1.3t opportunity over next five years
The Ministry of Environment and Forests (MOEF) had notified new emission norms for air and water consumption in December 2015, with a deadline of two years for implementation. While the deadline has expired, very little progress has been made in this regard till date. However, the Central Electricity Authority (CEA) under the Ministry of Power has worked out a revised five-year timeline to December 2022 with power plants – this has been agreed to by the MOEF and power plants will have to install the requisite emission control equipment by December 2022. In this note, we delve into the potential opportunity from these norms over the next few years by analyzing the implementation plan for ~192GW of India’s existing coal-fired capacity, identifying the players benefitting from this move, and gauging the impetus to replacement demand with old plants getting phased out faster.
* Ordering for emission control equipment to finally start from CY18; December 2022 the revised deadline: The MOEF had notified new emission norms for air and water in December 2015 (see Exhibit 1), with a two-year timeline for implementation. While very little progress in the past two years, the CEA has worked out an implementation plan by December 2022 based on discussions with individual power plants. The emission control implementation plan submitted by the CEA to the Minister of Environment and Forest has been accepted and Central Pollution Control Board (CPCB) has already issued notices to ~131GW power plants in December 2017 (India’s coal-fired capacity at ~192GW) to comply with these emission norms as per the implementation plan (December 2018 to December 2022) submitted to the CEA. In our view, utilities were delaying orders, as they awaited (a) revised timelines to be frozen before going ahead with placing orders, (b) compensation for shutdown of boilers while retrofitting, especially in case of SCR implementation, and (c) change in PPAs to reflect higher costs from retrofitting. With these uncertainties behind, we expect orders to pick up significantly over the next 2 -3 years, as 2-2.5 years would be required for these projects to be executed to meet the implementation deadline of December 2022. ~40GW of plants have already been tendered for FGD installation, with ~32GW of tenders by NTPC alone.
* INR1.3t opportunity for emission control equipment providers: We delved into the potential opportunity from the emission norms over the next few years by analyzing the implementation plan for ~192GW of India’s existing coal-fired capacity. We estimate an opportunity of INR1.3t (see Exhibit 5) totaling 196GW from the retrofit of existing power plants (165GW) alongside the new plants (30GW) to be commissioned over the 13th plan (FY22). In case of existing plants, we have used the list of plants (~166GW) that have agreed to the implementation timeline with the CEA by December 2022. The capex is estimated at INR8.8m-12.8m/MW by the Central Electricity Authority for meeting the new air (SPM, SOX, and NOX) and water consumption norms. In our view, the spending on water consumption may not be material and have only considered the spend on SOX, SPM and NOX control equipment. ~INR4m is the estimate for the desulphurization unit (SOX control), and depending on technology, INR1m-4m/MW for selective catalytic reduction (SCR) for nitrogen emissions. The CEA estimates the tariff impact of ESP, SOX, NOX and closed water circulation at INR0.62-0.93/unit, which will be passed on via modifications to the existing PPAs of utilities. Of this, the cost for implementation of the FGD is INR0.20 and INR0.09-0.30 for SCR.
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