India plans to allow relinquished coal-fired plants to sell power

India's power ministry proposes letting coal-fired power plants keep selling power after completing their agreements with buyers, a letter seen by Reuters shows, despite national promises to close old plants to curb pollution.

The proposal, if approved, would help old coal plants earn additional revenue, increase liquidity in short-term power markets and help distribution companies in states facing a power deficit access cheaper power, the ministry said in the draft proposal dated Friday.

"It is in the consumer interest to keep the tariff of electricity as low as possible," says the letter sent to power departments of India's states and the heads of federal government-run utilities such as NTPC Ltd.

Such a move would enable federal-run electricity generators such as NTPC "to sell power in any mode" after distribution companies exit an agreement upon the completion of the tenure, the ministry said.

Power Minister R.K. Singh and Finance Minister Nirmala Sitharaman have previously said they plan to shut old coal-fired power plants. The environment ministry has also pushed for shutting down coal plants, which account for 80% of India's industrial pollution, if they do not comply with green laws.

The outcome remains unclear. The power ministry has sought comments from the states and the heads of federal government-run power generators. A final decision on the proposal is not imminent.

A senior power ministry official said on Sunday only inefficient plants would be shut down.

"Cost-effective utilities that provide cheap power will still be allowed to operate. Small, inefficient plants will be shut down," the official said.

Distribution companies operated by states such as Punjab, Delhi, Andhra Pradesh and Odisha want to surrender power allocated by federal government-run utilities after the plants complete 25 years, the power ministry said.

The states cited reasons such as the availability of excess power and high cost of electricity as reasons for surrendering power allotted to them under the agreements.

A list compiled by the power ministry in 2019 shows distribution companies wanted to surrender power generated from utilities with a capacity of 5.75 gigawatts.