A majority of 28,000 MW gas-based power plants are likely to turn idle, especially on the eastern cost of the country, after the Union government decided to terminate the subsidies provided under the gas price pooling mechanism to the power companies beyond March 31, Industry officials told FE.
A majority of 28,000 MW gas-based power plants are likely to turn idle, especially on the eastern cost of the country, after the Union government decided to terminate the subsidies provided under the gas price pooling mechanism to the power companies beyond March 31, Industry officials told FE. Officials stated that the gas price pooling was of little help to gas-based power companies as the bid prices were much higher than the prevailing international LNG prices. Power produced through costly gas led to higher tariffs making them uncompetitive against alternative energy prices such as renewables.
Issac George, Group CFO of GVK Power told FE, “We were the winning bidders for our Jegurupada phase-2 project in Andhra Pradesh in the last round of bidding, but the $5 per mmBtu price we bid, later on examination, turned out to be much higher compared to the global LNG price of $2.5 per mmBtu, that the discoms refused to buy”. “We have written to the government to reduce the auction price of gas in consonance with the global prices, otherwise it will lead to complete failure of the gas based power plants, especially for power plants on the eastern coast,” George said. “Our two plants are lying idle for the last 3 years,” George added.
Under the gas price pooling for power sector, government gave incentives on value added tax, customs duty, margins to Gas Authority of India, and transportation costs. Now that these have been removed, LNG prices for power companies on the eastern coast would be much higher, said experts.Analysts said, around `134,000 crore is riding on the back of 28,000 MW gas based projects, and if government doesn’t take steps through necessary policy changes, it would seriously affect the majority of these power producers including other stakeholders. The biggest hit would be the bankers who funded the 70% of the project cost.
Another industry official said, “Most of the LNG terminals – Dahej, Hazira, Kochi are on the western coast, which increases the logistics cost for companies who plan to source gas from the west coast terminals. Also, no supplier will sell to one or two producers unless there is sufficient demand,” the official said.Some of the major gas based plants on the eastern coast are the GMR’s Vemagiri and the Rajahmundry plants, GVK’s Gautami and Jegurupada, Phase-1 & Phase-2 projects, Lanco’s Kondapalli project and Reliance Power’s 2,600 MW Samalkot plant among others.
The landed cost of LNG reigned at $11-$12 per mmBtu when the government started providing gas price pooling to the power sector, however since then the prices fell to a low of $5.5 mmBtu, making the government prices under auction costlier, leading to drop in bids or negative bids, said analysts.Rupesh Sankhe, research analyst with Reliance Securities, said apart from reducing the auction price for gas, they should make it obligatory for state discoms to compulsorily purchase certain percentage of gas based power on the lines of renewable purchase obligations, to make the gas-based projects viable for power producers. “Gas based power is clean energy and has the peaking capacity that other renewable power project don’t have,” Sankhe said.