Running Dry

Inadequate gas supply hampering segment growth

The gas-based power generation segment in the country has delivered a flat performance in the past couple of years. The gas-based power projects have been operating at a low plant load factor (PLF) of around 22 per cent. The limited availability of domestic gas and costly imported liquefied natural gas (LNG) are the main reasons for this. A number of proposals for the revival of the segment are underway given that gas-based power plants have fast ramping capabilities and are relatively cleaner. Reportedly, the power ministry is planning to conduct a reverse e-auction to select gas-based stations with a total capacity of 24,000 MW for providing subsidised imported fuel under a bailout package. The imported LNG will be made affordable through haircuts by the central and state governments, power companies and gas transporters.

Current capacity and operational performance

Currently, gas-based power projects aggregating nearly 24,937 MW account for 7 per cent of the country’s total installed capacity. During 2018-19, gas-based power generation stood at 49.83 BUs, contributing to 4 per cent of total conventional power generation. However, the PLF of gas-based plants has been declining continuously. The average PLF came down to around 23 per cent in 2018-19 from 67 per cent in 2009-10.

Further, about 14.30 GW (11.30 GW commissioned and 3 GW under construction), or 51.2 per cent of the gas-based capacity is stranded due to non-availability of domestic gas. The main reason for stranded gas-based capacity is the insufficient availability of domestic gas, particularly from the Krishna Godavari Dhirubhai-6 (KG D-6) basin. The supply of gas to the power sector from this field has been nil since March 2013.

Gas supply and demand

The total domestic gas allocated to power projects is 87.12 million metric standard cubic metres per day (mmscmd) and the average domestic gas supplied during the year 2017-18 was only 25.71 mmscmd. Around 75 per cent of gas-based power (37 BUs) was generated from domestic gas and the rest from imported RLNG (7.92 mmscmd in 2017-18). However, with regard to imported LNG, one of the key positive developments has been the recent decline in LNG prices, which stood at $5 per million metric British thermal unit (mmBtu) in May 2019, down from $10 per mmBtu in November 2018, with the commissioning of new projects and liquefaction capacities in Australia and the US.

On the domestic gas pricing front, the government plans to waive customs duty (2.57 per cent) on natural gas and bring it under the goods and services tax regime, lowering the tax rate to 5 per cent from the currently applicable VAT of 15-20 per cent. With regard to gas transportation infrastructure, the recently commissioned Ennore and Mundra terminals are expected to improve the situation.

Issues and challenges

A shortfall in domestic gas availability and unaffordable imported gas are the biggest challenges facing the segment. Since the power generated from imported LNG is less competitive than that from other sources of power, it ranks lower in merit order dispatch. Further, the government’s e-bid subsidy scheme, which provided a short-term relief of two years to the segment, was rolled back in 2017. The earlier version of the R-LNG scheme had not achieved much success because many states refused to buy power at Rs 4.70 per unit, and also did not extend the tax cuts required to buy power through this scheme. While Rs 75 billion was earmarked for the scheme under the PSDF, only Rs 13.92 billion was actually disbursed owing to a lukewarm response.

Outlook

Taking cognisance of the benefits of gas-based power generation, a number of interventions and proposals are in the works to revive the segment. Studies are being done to test gas-based plants as “peaker” plants, which can switch on quickly and even out supply fluctuations from renewables. As per government estimates, about 20 GW of gas-based capacity is proposed to be used as peaking stations.

Apart from this, a gas auction mechanism is being discussed on the lines of the e-bid scheme. This involves the pooling of 5.45 mmscmd of deep-sea gas supplied by the Oil and Natural Gas Corporation with imported LNG to supply to power plants. Reportedly, there are two options for allocation under review – auction or allocation by rotation to the power projects. Other measures that are being considered include diversion of gas from non-core sectors, moderation of R-LNG costs and expeditious roll-out of LNG transport infrastructure. In addition to this, the union budget has proposed to jointly frame a scheme for the revival of gas-based power plants on the lines of the e-bid RLNG scheme, based on the recommendations of a high-level empowered committee.

Given its quick ramping capabilities, gas-based power generation plays a key role in grid balancing. This is of immense importance in the emerging power sector scenario characterised by growing renewable energy and increasing peak power demand. The implementation of policy initiatives under discussion could go a long way in reviving the segment.

Priyanka Kwatra

 

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