Mandatory R-LNG to up power costs

Written by Subhash Narayan | Updated: Oct 31 2011, 08:13am hrs
Power tariffs are clearly on their way up. On top of electricity regulators resolve to hike tariffs annually even if the distribution companies dont agree, the government is considering a proposal to restrict allocation of domestic gas to power projects at 60% of their rated capacity. Power firms will have to mandatorily use expensive liquefied natural gas to meet the balance fuel requirement.

The move has been prompted by the widening demand-supply mismatch for gas in India. It is estimated that LNG imports will rise from the present 46 mmscmd to 103 mmscmd by 2016-17. The proposal, if implemented, will force gas-based power projects to source at least 25% of their fuel requirement as regassified LNG (R-LNG) from abroad. The changes, while addressing the shortage of domestic gas, will also raise the cost of fuel for power projects and lead to higher electricity tariffs.

The current policy requires gas-based plants to have power purchase agreements (PPA) for 85% of their generation. Under the proposed changes, PPAs will factor in the fuel price based on 60% domestic gas and 25% R-LNG.

While domestic gas costs $4.2-5.5 per million British thermal unit (mmBtu) excluding pipeline charges and taxes, imported fuel in liquid form costs $10-14 per mmBtu, excluding pipeline charges and taxes.

Power ministry has indicated that taking R-LNG beyond 25% will be difficult keeping in mind the economics of electricity distribution. So, it is likely that this level is maintained in the form of a policy for all existing and future gas-based power projects, said an official in the inter-ministerial committee on pooling natural gas prices.

The committee headed by Planning Commission member Saumitra Choudhuri also feels the power sector would need to source some of their fuel from R-LNG. A final decision will be taken by the Prime Ministers Office (PMO) after consulting the ministry.

Fertiliser and power sectors have priority to get domestic gas. Out of the gross domestic gas availability of about 132 mmscmd, more than 88 mmscmd has to be allocated to the two sectors.

Allocation for the all existing gas-based power projects (totaling about 17,700 MW) has been made up to 70% of their rated capacities (75% in case of Andhra Pradesh-based power projects). This will need to come down to 60% for all existing projects once the new gas policy is out. New projects will be given domestic gas as per the policy in force, said a source.

Over 12,200 MW (needing about 45 mmscmd of gas) of additional gas-based capacity is slated to come up over next two years and between 20,000-25,000 MW (needing 80-100 mmscmd of gas) is proposed over the 12th Five-Year Plan period.