Environmental Performance of Coal-Based Thermal Generation Plants: A Two-Stage DEA Model with Undesirable Outputs

The thermal plants in India operate within a regulated framework under the ambit of the Electricity Act, 2003. The tariff framework has evolved through various stages from a cost-of-service approach to a normative rate of return approach by introducing benchmark norms for various operational parameters. This study evaluates the operational and environmental performance of 20 coal/lignite-based Thermal Power Plants (TPPs) whose tariff is regulated by the Central Electricity Regulatory Commission (CERC). A Two-stage Data Envelopment Analysis (DEA) was applied to 102 DMUs over a period of three financial years, from 2014–15 to 2016–17. The first model estimates the operational performance of the plants, while the second model also includes the environmental indicators as undesirable outputs. Additionally, in the second stage, the efficiency scores from the first stage for both the models are regressed with external factors i.e., average unit size, vintage, and plant type to analyze their impact on the performance of TPPs. OLS regression results of the first model show that vintage is significant, while in the second model, both average unit size and plant type were significant.