Millennium Post

Tackling gas resources

Policy flip-flops, high costs and irresponsible management have pushed India’s gas-based power plants to the verge of becoming non-performing assets

More than half of India's total capacity to generate power from natural gas is not being adequately used to its optimal level due to a lack of gas, putting plants on the verge of becoming regrettable non-performing assets, according to a parliamentary panel. The non-availability of domestic gas and the high cost of imported supply has "stranded" gas-based power plants with a capacity of 14,305 megawatts, the Standing Committee on Energy has said in a report tabled on January 4, 2018.

India's 24,150 MW grid-connected gas-based power generation capacity has drawn 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 benchmark. 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, the report states in great detail. 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 and progressed over polluting coal-based power plants which do little in view of protecting environmental concerns.

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 different states (2,665.30 MW). The private ones – 42 per cent of which are in Andhra Pradesh and 26 per cent are located in Gujarat – are the least efficient (16 per cent PLF).

The Krishna Godavari (KG) basin in Andhra Pradesh has been considered the largest natural gas basin in the country. The production from KG D6 field has reduced drastically to zero supply for the power sector since March 2013. KG D6 was expected to provide 80 MMSCMD by the end of 2009, followed by subsequent increases. But, its 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," the report further notes, highlighting a major source of concern for India's energy economy today.

The panel had underlined the poor performance of KG D6 in October 2013 as well. Five-and-a-half-years later, nothing much has changed and the sector continues to suffer due to the various policy flip-flops made by successive governments. 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 its various incorrect projections and false assurances on the supply of gas, says the panel. Even when domestic gas supply had reduced, power plants had continued to depend on imported gas (RLNG), but this is proving to be quite costly.

Holding the Ministry of Petroleum and Natural Gas responsible for this damage, the report demands a clear picture regarding the availability of gas for the power sector in the next 5-10 years, so that companies are able to consider the availability of gas before making investments in India's gas-based power plants.

With Rs 5,440 crore already as 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 has heavily criticised banks for their unrealistic lending of public money, and further says that they should take adequate responsibility and work towards finding an appropriate solution to resolve the incompetency of gas power plants in national interest.

Poor policies

In 2010, the power sector had been heavily prioritised over city gas distribution (CGD) systems for allocating domestic natural gas. But, in 2013, gas allocation to CGD systems was placed under the 'no cut' category at the cost of the power sector, which was already being directly affected by the declining capacity of the KG D6 gas basin. This proved to be quite detrimental for the power sector. The changes in the policy of domestic gas allocation have also made these plants unviable, jeopardising the massive public investment that has been made into the sector.

The committee also feared that the proposed plans of the Ministry of Petroleum and Natural Gas to remove the power sector from priority allocation will be a major setback for this sector, and may even make 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 its gas allocation policy to provide parity to gas-based power plants across the country.

Role of state governments

The already stressed gas sector has also witnessed steady competition from the renewable sector (solar/wind), which has been made available to states at much cheaper rates. Hence, states have been reluctant to buy high-cost power, generated from the various gas-based power plants. Poor response of the states to the scheme for import of re-gasified liquefied natural gas (RLNG) had forced the government to discontinue the scheme in 2017.

The 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 alongside ensuring that plants receive 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 the valid limitations on the use of coal, which comes with its own share of detrimental ecological 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, thus, needs an urgent attention of the government, says the panel.

The standing committee on energy had also expressed concern over delayed and stranded hydropower 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.

Hydropower is clean, green, sustainable – it also forms a cheap source of power in the long run, but this sector, too, has not received due attention, flags the report.

(The views expressed are strictly personal)

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