Special tariff likely to attract $25 bn more in power sector

In what may open the doors for $20-25 billion additional investments over the next five years in natural gas-based power generation, the electricity watchdog is coming out with a special tariff dispensation for peaking power plants.

?We are finalising the tariff norms for peaking power plants and may notify these in a week or so,? the Central Electricity Regulatory Commission (CERC) chairman Pramod Deo told FE. The projects will be allocated through tariff-based bidding, he added.

Peaking power is the electricity supplied to the Grid when there is maximum load on it and the risk of collapse is higher. Open cycle natural gas-based power plant is the most reliable source to meet peaking power requirements as it is easier to switch it on and ramp up generation quickly. The existing gas-fired power plants operate in closed cycle mode. This fuel-efficient technology is not suitable for peaking power due to the lack of operational flexibility which open cycle plants offer.

IndianOil, ONGC, BPCL, GAIL, NTPC and Reliance Industries are among companies which have access to domestic or imported natural gas. They are likely to scramble to tap the business opportunity that the new regulatory regime would open.

At present, coal-based or other baseline power plants are required to reduce generation when electricity demand drops. When electricity demand increases, such plants lack the flexibility to quickly step up generation to meet the extra demand. That poses a big constraint to optimising returns on investments made in such plants.

Peaking power plants will have higher tariffs compared to generating stations used to meet baseline power requirement as they are meant to operate during peak hours only. They will supply power under long-term power purchase agreement.

The CERC move is in line with the recommendation made in a recent McKinsey study commissioned by the government.

India?s peaking power shortage is estimated at 18,000 ? 20,000 mw, or 10-12% of the total installed capacity. This gap could widen to 25% by March 2017, as per McKinsey?s projection. The global research firm suggested that India increase share of natural gas-fired power generation capacity to overcome the growing shortage of peaking power.

?In the coming years, India will need 25,000-30,000 mw capacity dedicated to meeting peaking power requirement,? Wartsila India managing director Rakesh Sarin said.?The industry is keen to invest in developing peaking power generation capacity,? he said.