Auction Outcome

Third round attracts sub-zero bids for R-LNG

The Ministry of Power’s (MoP) regasified liquefied natural gas (R-LNG) auction scheme witnessed an unexpected outcome when gas-based power producers quoted sub-zero per unit bids in the latest round. The auction was conducted by MSTC Limited on March 20, 2016 wherein nine successful bidders were allocated 7.62 million standard cubic metres per day (mmscmd) of R-LNG, benefiting 5,942 MW of stranded gas-based power generation capacity.

In the latest round, the bidding process resulted in a premium of Re 0.03 per unit of power generated and savings of Rs 1.83 billion of government subsidy, which is provided through the Power System Development Fund (PSDF). This is a deviation from the previous two rounds of auctions conducted in May 2015 and September 2015, wherein the MoP doled out subsidies aggregating Rs 26.4 billion from the PSDF for stranded plants (which receive no domestic gas supply) and partially stranded plants (which receive limited domestic gas).

As per India Ratings, the negative bid of Re 0.03 per kWh in the reverse auction for stranded gas-based power projects reflects a decline in the prices of spot natural gas, in line with the fall in global crude prices along with the concessions provided by various stakeholders. India Ratings notes that this is a positive development for the power sector, as the plants are no longer dependent on government support for subsidy.

In the third round, Ratnagiri Gas and Power Private Limited secured the highest allocation of gas at 2.35 mmscmd followed by Lanco Kondapalli Power Limited (1.58 mmscmd), GMR Rajahmundry Energy (1.09 mmscmd), Konaseema Gas Power Limited (0.71 mmscmd), Pioneer Gas Power (0.55 mmscmd), GMR Vemagiri Power (0.52 mmscmd), Gama Infrapop Private Limited (0.35 mmscmd) and GVK Power (0.32 mmscmd). These plants are expected to generate 6.79 BUs of electricity, which will be supplied to discoms at or below Rs 4.70 per unit between April 1, 2016 and September 30, 2016.

At present, the grid-connected gas-based power generation capacity stands at 24,150 MW, of which 14,305 MW across 29 plants has no domestic gas supply and is identified as stranded. Of these, 11 plants, with a cumulative installed capacity of 6,626 MW, participated in the latest bidding round.

The third round of e-auction was held on March 15, 2016; however, it was annulled as the bidders did not get an opportunity to bid below Re 0 per unit, as this option was not built into the electronic bidding system. The per unit PSDF ceiling price was fixed at Re 0.41 per unit, which was later revised to Re 0 per unit to allow negative bidding in the reauction held on March 20, 2016.

Background

The current auction for stranded gas-based plants is the third phase of auctions conducted under the Scheme for Utilisation of Stranded Gas-based Generation Capacity, which was approved by the Cabinet Committee on Economic Affairs in March 2015. Under the scheme, imported spot LNG is supplied to stranded and partially stranded gas-based power plants at a reduced price selected through the reverse bidding process. Under the mechanism, all stakeholders, including the central and state governments, collectively forgo certain applicable taxes and levies on the incremental R-LNG being imported to ensure price reduction. The auction helps select the plants that seek the lowest per unit subsidy support for sale of power to discoms, thereby placing a premium on efficiency. The tariff paid by discoms is fixed at a maximum of Rs 5.50 per unit and the gas plants are mandated to operate at the targeted plant load factor (PLF) levels.

In the first round of auction, 10 stranded plants and five partially stranded plants were revived. These plants cumulatively received financial support of about Rs 8.4 billion from the PSDF to generate electricity from June 1, 2015 to September 30, 2015. In the second round, 13 stranded plants aggregating 8,262.08 MW of capacity and partly stranded plants aggregating 3,455.64 MW of capacity were revived. These plants were provided PSDF support of about Rs 18 billion to generate electricity from October 1, 2015 to March 31, 2016.

Implications and the way forward

The government’s R-LNG auction scheme offers a shot in the arm for gas-based power producers, whose capacity has been lying idle owing to the lack of fuel. The decline in gas production from Reliance Industries Limited’s Krishna-Godavari-D6 block has severely impacted power producers. PLFs plummeted from about 66 per cent in 2010-11 to about 20 per cent in 2014-15. However, as a result of the new scheme, the PLF of gas-based power capacity improved marginally to 22.5 per cent in 2015-16. Going forward, long-term solutions need to be explored in order to increase domestic gas supply.

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