Policy flip-flops, irresponsible attitude of states have put gas-based power plants on the verge of becoming non-performing assets
More than half of India’s capacity to generate power from natural gas is not being used due to lack of gas, putting plants on the verge of becoming non-performing assets, according to a parliamentary panel.
The non-availability of domestic gas and high cost of imported supply has “stranded” gas-based power plants with a capacity of 14,305 megawatts, the Standing Committee on Energy says in a report tabled January 4, 2018.
India’s 24,150 MW grid-connected gas-based power generation capacity drew investments of Rs 4-5 crore/MW. That would take the total investment under stress now to over Rs 60,000 crore.
The average domestic gas supplied to gas-based power plants during 2017-18 was only 25.71 million metric standard cubic meter per day (MMSCMD), which is 70 per cent short of the allocation. Due to this shortfall, gas-based power plants’ load factor (PLF) has shrunk 43 per cent points since 2009-10 to 24 per cent in 2017-18. PLF measures a power plant’s output to its capacity.
Natural gas is a relatively cleaner fuel and the government must take corrective measures to de-stress the sector, says the report. Even though there will be no gas-based capacity addition over the next three decades due to domestic fuel shortage, expensive imports, lack of infrastructure etc, the sector must be prioritised over polluting coal-based power plants.
Who is stressed the most
Among the 31 stranded gas-based power plants, 24 (77 per cent) are private, with a capacity of 9,673 MW. One plant (1,967 MW) belongs to the Centre while six are with states (2,665.30 MW). The private ones—42 per cent of which are in Andhra Pradesh and 26 per cent in Gujarat—are the least efficient (16 per cent PLF).
The Krishna Godavari (KG) basin in Andhra Pradesh is considered as the largest natural gas basin in the country. The production from KG D6 field has reduced drastically to zero supply for power sector since March 2013. KG D6 was expected to provide 80 MMSCMD by the end of 2009, followed by subsequent increases. But production declined to 5.5 MMSCMD in 2017-18 from 55.35 MMSCMD in 2010-11, and “today the production is as good as nil,” notes the report.
The panel had underlined the poor performance of KG D6 in October 2013 as well. Five-and-half-years later, nothing much has changed and the sector suffers due to policy flip-flops of the government. While, the total domestic gas allocated to power projects is 87.12 MMSCMD, the average domestic gas supplied during 2017-18 was only 25.71 MMSCMD.
Now, the sector is paying the price for incorrect projections and false assurances on the supply of gas, says the panel. Even as the domestic gas supply has reduced, the power plants depended on imported gas (RLNG), but this is costly.
Holding the Ministry of Petroleum and Natural Gas responsible for this, the report demands a clear picture regarding the availability of gas for power sector in the next 5-10 years so that companies consider the availability of gas, before making investments in gas-based power plants.
With Rs 5,440 crore as the outstanding debt, Ratnagiri Gas and Power Private limited (RGPPL) owes the most to IDBI Bank, followed by Kashipur gas based power plants that owe Rs 2,128.59 crore to IFCI Ltd.
The panel criticises banks for unrealistic lending of public money, and says that they should take responsibility and work towards finding the appropriate solution in the national interest.
Poor policies
In 2010, the power sector was prioritised over the city gas distribution (CGD) systems for allocating the domestic natural gas. But in 2013, the gas allocation to CGD systems was placed under ‘no cut’ category at the cost of the power sector, which was already getting affected due to declining capacity of the KGD6 gas basin. This proved detrimental for the power sector. The changes in policy for domestic gas allocation have made these plants unviable, jeopardising the huge public investment made into the sector.
The committee also feared that the proposed plans of the Ministry of Petroleum and Natural Gas to remove power sector from priority allocation will be a major setback for this sector, and may make even operational gas based plants stranded. This is a regulated sector which requires domestic gas allocation more than any other sector. In 2015, Andhra Pradesh High Court had asked the central government to re-examine the gas allocation policy to provide parity to gas-based power plants across India.
State governments are also responsible
The already stressed sector also faced competition from the renewable sector (solar/wind), available to states at cheaper rates. Hence, the states have been reluctant to buy high cost power, generated from gas-based power plants. Poor response of the states to the scheme for import of re-gasified liquefied natural gas (RLNG) forced the government to discontinue the scheme in 2017.
Way ahead
The government should revive the E-RLNG scheme, suggests the panel. This was also suggested by the Association of Power Producers (APP) in September 2018. This scheme was intended to supply imported RLNG to the stranded gas-based plants and plants receiving domestic gas, up to the target PLF, selected through a reverse e-bidding process.
Noting that Rs 86,440.21 crore was collected as coal cess in the last six years (2010-11 to 2017-18) out of which only Rs 29,645.29 crore was actually transferred to the National Clean Energy & Environment Fund (NCEEF), the panel has strongly recommended financial support to the stressed gas-based power plants in the country. In fact, the Supreme Court has also said that the clean energy cess collected till July 1, 2017, must be used only for environmental purposes.
Considering limitations on use of coal due to environmental consequences, the gas-based power sector is likely to play an increasingly important role in the country’s power sector. Hence, the sector must be revived despite all odds and needs urgent attention of the government, says the panel.
The standing committee on energy had also expressed concern over delayed and stranded hydro power projects in the country. Against the total potential of 2,41,844 MW, only 45,399.22 MW (19 per cent of the total potential) has actually been utilised.
Hydro power is clean, green, sustainable and also a cheap source of power in the long run, but this sector, too, has not received due attention, flags the report.