FAQ - Tata Mundra Project

What is the Tata Mundra Project?

The Tata Mundra Project is a 4,000-megawatt power plant that is being developed by Coastal Gujarat Power Limited at the port city of Mundra in India’s Gujarat state. This ultra mega project will establish India’s first 800-megawatt unit supercritical technology thermal power plant, which is likely to be the most energy-efficient, coal-based thermal power plant in the country.

The Project is expected to impact close to 16 million domestic consumers apart from supplying cost competitive power to industry and agriculture.

The project will sell power to the states of Gujarat, Rajasthan, and Maharashtra in western India and to Haryana and Punjab in northern India, areas that are suffering from severe shortages of electricity. It will provide a competitive source of power and help meet these states’ growing demand for electricity. Cheap and reliable power from the project will help improve the competitiveness of the manufacturing and services industries, which often rely on expensive standby diesel generation to meet their power needs. Competitively priced power will also improve access to electricity in rural and urban areas, while reducing the subsidy burden on state governments.

The first of the power plant’s five 800-megawatt units is expected to be commissioned in July 2011, and the remaining units will be commissioned at subsequent intervals of four months each.

Why does India need to develop ultra mega projects?

India faces a severe electricity shortage that is seriously hampering its industrial growth and competitiveness. If India wants to sustain its current level of GDP growth (8-9 percent a year), it needs to add about 160,000 megawatts in generation capacity in the next decade. This means that India needs to more than double its current generation capacity of about 132,329 megawatts.

Of India’s current generation capacity, more than 65 percent is from thermal power plants; some 83 percent of this (about 54 of the total) is coal-based power. Hydropower accounts for about 26 percent of capacity, while the remainder comes from nuclear power and from wind and other renewable sources of energy. The fuel mix of India’s generation capacity is expected to remain roughly the same in coming years, which means that the country will continue to depend heavily on coal-based power.

India has a very low per capita consumption of electricity, at about 437 kilowatt hours a year, as compared to China (about 1528 kWh) or Brazil (about 1941 kWh). But demand is growing rapidly.

There is an urgent need in India to add significant generation capacity in a short time frame. At this stage, only large power projects can rapidly respond to this growing demand for electricity.

It is in this context that IFC is considering supporting Coastal Gujarat Power Limited, in a project that will add about 3 percent to India’s current generation capacity. The plant is expected to be the most energy-efficient coal-based thermal power plant in the country.

What technology is the project using, and how does it differ from traditional technology?

The project uses supercritical technology. This technology and the choice of unit sizes will help the project produce lower greenhouse gas emissions than regular coal-fired power stations.

Supercritical technology will help the project achieve higher efficiency, which saves fuel and reduces greenhouse gas emissions. The greenhouse gas emissions per kilowatt hour of energy generated will be about 750 grams of carbon dioxide per kWh, as compared to India’s national average of 1,259 g CO₂/ kWh for coal-based power plants. The world average is 919 g CO₂/ kWh, while the average for OECD countries is 888 g CO₂/ kWh. (Figures are for 2005.) The plant will emit 23.4 million tons of CO₂ per year, substantially less than the 27million tons that a plant of similar installed capacity would emit if using conventional, less efficient energy technology.

As compared to any other subcritical power plant in India, this project will avoid burning 1.7 million tonnes of coal per year, thus averting carbon emissions of 3.6 million tonnes per year.

How does this project fit into IFC’s climate change strategy?

The World Bank Group’s Strategic Framework for Climate Change seeks to scale up action by continuing to prioritize economic growth and poverty reduction. The strategy argues that access to energy services and higher energy use by developing countries are fundamental to the development goals of the Bank Group and our client countries.

Within the objectives set by the Bank Group, IFC’s climate change strategy for the electricity sector has four components: more focus on demand-side management, an emphasis on reducing transmission and distribution losses, a hierarchy of priorities when supporting grid-connected generation, and support for distributed generation that uses renewable energy.

For grid-connected generation, IFC is prioritizing renewable energy solutions, low-carbon fossil fuels (such as natural gas), better efficiency at existing power plants, and support for developing new coal-fired thermal plants whose efficiency will place them in the top 25 percent for a country’s electricity generation. Where scale permits, such plants should use supercritical technology. For smaller coal projects where supercritical technology cannot be used, plant efficiency should be greater than a specific efficiency threshold. Oil-based generation remains an option when there is no other alternative.

Since the most technologically proven method of reducing greenhouse emissions is improving the efficiency of power plants, IFC is giving high priority to funding more efficient coal power projects for coal-based generation.

It is expected that India will continue to be dependent on coal to meet its power requirements because of the limited availability and high prices of gas, hydro, and other renewable sources. Hence IFC is supporting thermal power projects that have better greenhouse gas and environmental performance than the average in India, as a way to help the country’s meet its large need for more electricity.

What role will IFC play by supporting this project? Can Tata Power raise the necessary financing from commercial lenders?

IFC has a strong role to play in helping the company finance this project. India’s power sector has large financing needs. The Mundra project will be the largest power plant ever built in India. Financing on this scale is not easily fulfilled by commercial lenders.

The company needs to raise about $3 billion in loans, which local banks would find difficult to provide due to their sectoral and company exposure limits. IFC’s participation can help attract financing from other multilateral agencies, export credit agencies, and foreign and local banks. For its part, IFC is proposing a loan to provide about 11 percent of the $4.2 billion total project costs.

IFC’s support will also improve investor confidence and reduce the perceived risk for banks and other financial institutions. The longer tenor of about 20 years and higher average maturity of IFC’s financing will enable the project to be structured in a manner that will reduce the risk profile for other international investors. The Asian Development Bank and the Korean Export Import Bank are granting similar maturities, and together this will reduce some strain on the project’s finances. Foreign and local commercial banks were not in the position to give loans for such a long time period, thus potentially creating the risk of extra costs for refinancing at an early stage in the project's life.

In addition, IFC as a financier is providing hands-on advice. The project's attractive energy tariff is expected to ensure that utilities will buy and pay regularly for such cheap power. IFC is helping the company structure the project so as to reduce implementation risks, including delays and cost overruns.

More generally, IFC’s financing will also have the catalytic effect of improving investor confidence in India’s power sector, leading to larger contributions from international institutions in future projects as well.

How will compliance with IFC’s environmental and social standards improve the project?

IFC’s Performance Standards are more stringent than India’s environmental and social guidelines. While Tata Power is known for its sensitivity to environmental and social issues, by helping Tata Power implement the Performance Standards, IFC’s involvement will result in better management of environmental and social impacts of the project.

For example, IFC has helped the company conduct a detailed social impact assessment, which would not be required without IFC’s involvement. This assessment will enable the project to assess and mitigate the social impacts on the local communities affected by the project.

IFC’s involvement will also result in lower emissions of air pollutants (sulfur dioxide, particulate matter) from the plant, since IFC guidelines are stricter than those required by the Indian government.

What compensation is being provided to ensure that land acquisition will not make those affected worse off?

No physical displacement or resettlement is anticipated.

The project will, however, have a direct impact on the livelihoods of a number of households that are dependent on cattle rearing. To mitigate the impacts on account of private and public land acquisition, the company:

• Has agreed to a negotiated compensation value with the private land owners from whom land is being acquired, at 6 times the value fixed by the government for similar land.
• Has developed a framework to mitigate adverse impacts on livelihoods in affected communities. For example, the livelihood of communities dependent on grazing will be affected due to a loss of access to pasture land that will be acquired by the project. The company has prepared a facility to provide fodder to the affected households and mitigate this impact during the life of the project.
• Will provide technical support to affected communities to enhance the productivity of and yield from the balance of grazing and wasteland, and agricultural land, in the affected villages.

The company is planning measures for temporary and permanent livelihood restoration. It will also provide skills development training to help affected households seek alternate sources of livelihood and income enhancement.

Could India generate power through alternative sources, such as solar?

If India is to sustain its current growth of 8-9 percent a year, it needs to add about 160,000 megawatts in generation capacity and build associated transmission and distribution infrastructure in the next decade. Demand will also increase as many households benefit from the government’s accelerated rural electrification program. Clearly, India needs much more power in a short time frame to continue its economic development.

While the government is seeking to increase generation of electricity from renewable sources, India still must rely on thermal sources to meet the growing demand. Gas-based power is not a viable alternative to replace coal-based power on such a large scale. Not enough natural gas is available in India, and the power it generates is too expensive for the country’s industrial or domestic use.

India has made progress in adding wind-based power, using reform initiatives that promote renewable sources and provide tax advantages for the private sector. Wind power still has limited reliability, however, and its higher cost of generation makes it unsuitable for meeting large-scale demand.

IFC is seeking economically viable ways to develop solar power (see the recent report, Selling Solar). The technology is evolving rapidly but cannot yet efficiently store solar energy and use it for base load operation, particularly at the scale required to meet India’s needs. The cost of solar is also much higher than that of coal-fired power. For comparison, the world’s largest concentrated solar power project is a $2 billion, 553-megawatt thermal electric project for Pacific Gas and Electric that is under construction in the Mojave desert and designed to operate when solar energy is available. The Tata Mundra project will generate more than eight times as much power as the Mojave solar project from an investment of just over twice as much ($4.24 billion).

The Government of India has decided to provide incentives to projects producing solar power and will buy this power at 30cents per kWh, compared to the Mundra Project’s tariff of 5.65cents per kWh. We understand that there are some solar thermal technologies available which could generate power at US15-17cents per kWh, about three times the tariff of the Mundra project. A solar thermal project which could generate the same amount of electricity as the Mundra project would require at least $2.9billion per annum in subsidies to match the Mundra Project’s tariff.

What is the nature of IFC’s energy portfolio in India?

Over the past 5 years, IFC’s strategy in the South Asia region has included a marked emphasis on renewable energy. IFC has a portfolio of 7 power projects in India, of which one is coal-fired, 2 are hydropower, one is wind, 2 are biomass and one is in the transmission sector.

Recently, IFC played a key role in financing a solar photovoltaic manufacturer in India. This company, Moser Baer has a targeted capacity of 80MW per annum and an objective of reducing costs of solar power over a five-year period to a level which is competitive with other energy sources.

Currently, IFC is actively supporting several pilot projects in partnership with the private sector to demonstrate scalability of distributed generation using renewable energy in rural India. IFC will continue to focus on renewable energy.

Should IFC be involved in Tata Mundra, as there are several other private and public sector supercritical plants planned for development in the next five years?

IFC’s support is expected to enhance the confidence of international banks and other investors in India’s power sector and, specifically, its ultra mega power program.

The Tata Mundra project will establish the use of supercritical technology, making it the most energy efficient coal-based thermal power plant in the country. The project is the first to be developed by the private sector under India’s ultra mega power program, one of the most important components of the government’s policy in the power sector.

The Government of India specifically requested IFC’s participation in the ultra mega projects. IFC will participate in the first of these because of the demonstration effect that the successful realization of this project will have on India’s energy sector and investors.

Will the coal-based Tata Mundra project get carbon credit benefits? If yes, what is the rationale?

In September 2007, the Clean Development Mechanism’s Executive Board determined that projects like Tata Mundra, which use coal-fired supercritical technology, are eligible for carbon credits under the CDM. This is because the technology they use to generate power is more energy-efficient than what would otherwise be used with the given fossil fuel in developing countries. CGPL has initiated procedures to apply and be registered as a CDM project. Although it is not certain whether Tata Mundra will qualify for carbon credits, the potential eligibility was considered by Tata Power when it bid a low tariff for the Project i.e. the ultimate beneficiary of which are India consumers.

Was an alternative analysis carried out for other fuel options that could be used in the project?

The Indian government conducted alternative analyses from 2004 to 2006. These analyses included projections for the demand for power; alternative sources of fuel, including renewables, gas/LNG, coal, and nuclear; and various other generation schemes. The government looked at 11 scenarios using a variety of fuel mixes and projections of growth in generation capacity through the years 2031-32. This resulted in recommendations to develop the ultra mega power program, which includes the Tata Mundra project. The alternative analyses are publicly available on the Web site of the Planning Commission to the Indian government, under "Integrated Energy Policy - Report of the Expert Committee" (http://planningcommission.nic.in/reports/genrep/rep_intengy.pdf).

Why is the Tata Mundra project using imported coal? Isn’t India’s domestic coal production sufficient to meet the project needs?

India has large coal reserves, but domestic mining companies will not be able to satisfy the requirements of the large power plants that the country needs. In its Integrated Energy Policy, the Indian government determined that it will develop some of its power plants close to ports because of this need for imported coal. Other coal-based plants will be situated near mine sites and will have their own captive mines. The ultra mega power program has been designed to allow for a combination of imported and domestic coal projects.