The gas-based capacity generation segment in India has suffered tremendously over the past five years due to an acute shortage of domestic gas supply owing to the decline in production from Reliance Industries Limited’s Krishna Godavari-D6 block. The capacity addition has been marginal, while electricity generation has declined to nearly half.
As per CRISIL estimates, about 46 GW of thermal power capacity (30 GW coal based and 16 GW of gas based) is facing viability risks owing to these issues. In 2015-16, there were some signs of improvement in generation as compared to the previous year, in response to the central government’s emergency scheme for supplying regasified liquefied natural gas (R-LNG) to stranded power projects through competitive auctions.
Capacity and generation trends
As of February 2016, the installed gas-based generation capacity stood at 24,509 MW, of which 9,978 MW was owned and operated by the private sector, 7,555 MW by the central sector and the remaining 6,975 MW by the state sector. The gas-based installed capacity represents 12 per cent of the thermal installed capacity and about 8 per cent of the total installed capacity of the country. Between 2011-12 and 2015-16 (till February 2016), the installed gas-based capacity increased at a low compound annual growth rate (CAGR) of 7.5 per cent, compared to the 11.8 per cent growth registered by coal-based capacity.
Generation from gas-based plants declined consistently from 2011-12 to 2014-15 at a CAGR of 23.9 per cent owing to a shortage of domestic gas. This implied a sharp decline in the plant load factor (PLF) of gas-based plants by nearly 40 percentage points during this period. The PLF declined from 66.15 per cent in 2010-11 to 20.79 per cent in 2014-15.
A slight improvement in performance was observed during 2015-16, with generation increasing to 42,523 GWh during April 2015-February 2016 as compared to the 41,075 GWh generated during April 2014-March 2015. With this, the PLF increased slightly to 22.2 per cent for the period April 2015-January 2016.
In March 2015, the Ministry of Power (MoP) devised a mechanism for the revival of beleaguered gas-based power plants with a capacity of 27.1 GW (including 22.9 GW of commissioned capacity and 4.2 GW of ready-for-commissioning capacity as of January 2015) through e-auction-based allocation of imported R-LNG. The scheme provides a per-unit tariff subsidy from the Power System Development Fund for two years, and support has been capped at Rs 35 billion for 2015-16 and Rs 40 billion for 2016-17. The tariff paid by power discoms is fixed at a maximum of Rs 5.50 per unit and gas plants are mandated to operate at a PLF level of 35 per cent. So far, three rounds of bidding have been completed. Further, as per the new formula which came into effect from November 1, 2014, the price of domestic natural gas for the period April 1, 2015 to September 30, 2015 has been fixed at $4.66 per mmBtu on a gross calorific value basis. This is 8 per cent lower than the price of $5.05 per mmBtu, which was valid till March 31, 2015 owing to the fall in global energy prices.
No new projects have been announced in recent years given the advisory issued by the MoP in March 2012 to developers to refrain from planning new gas-based projects till 2015-16. The pipeline of gas-based projects essentially comprises projects that are under construction but delayed due to the lack of gas. At present, about 4.5 GW of gas-based power projects are in the pipeline and are expected to be operational over the next five years, subject to gas availability. Almost 97 per cent of the upcoming capacity belongs to the private sector. Meanwhile, the recovery of gas-based generation from negative growth is expected over the coming years, with an anticipated improvement in gas supply as well as the central government’s support schemes.
Domestic gas supply remains an issue of concern, although LNG auctions have helped the existing plants. A number of gas-based power plants have been stranded for want of adequate gas supply. The power sector has been struggling to recover costs from capital investment in gas-based capacity. Going forward, there is a need to find long-term solutions, including tie-ups with global suppliers to overcome the domestic gas shortage.