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Power ministry wants levies on LNG value chain to be removed
Price of liquefied natural gas (LNG) has been sliding in the world markets since January 2019 – about 40% – but that doesn’t seem to raise the capacity utilisation level of India’s gas-based power plants, most of which are stressed. According to sources, even such a big fall in LNG prices hasn’t made the domestic, gas-based power units viable and attractive for discoms to buy electricity from.
“Cost of gas, which includes landed cost of LNG imports, regasification and transportation costs, is still high and uncompetitive in relation to coal-based plants,” a source said. Domestic gas production has plummeted over the years. Reliance Industries’ KG DG gas output, which peaked at 69.43 million standard cubic meter per day (mmscmd) in March 2010 is now stagnating at abysmally low levels, with the asset at “late life stage”.
As much as 24,900 mega-watt of gas-based power stations continue to operate at very low utilisation levels (see chart); in fact their plant load factor has declined in recent months. Though touted as one of the cleanest source of reliable power, the share of electricity from gas-based power plants remain less than 4%.
Union power minister RK Singh told FE that the government is considering a scheme for gas-based power plants, but said it would necessitate all stakeholders to make some sacrifices. “For example, the states such as Gujarat and Andhra Pradesh where LNG lands and where they are regasified, they have to reduce their sales tax so that gas-based power can be purchased by discoms at tariffs that are viable ,” Singh said. He added that “owners of the gas pipelines, Gail and other firms, will have to cut some slack”. “Things would improve if we have more regasification terminals,” he added.
Sales tax on LNG regasification is upto 22%. Domestic gas price, which is linked to the weighted average price of four global benchmarks, is currently at $3.23/mmBtu. Spot LNG prices have fallen from $3.11/mmBtu to $1.93 mmBtu.
Gas-based power is much costlier (ranging between Rs 7/unit to even Rs12/unit) compared with Rs 2.41-3.50/unit range discoms pay for other power sources, on a weighted average basis. Even with gas prices coming down, it is difficult for gas power stations to match the prevalent power tariffs. The problems for gas-based units have been accentuated with the continuous drop in the price of solar and wind-based electricity, coupled with demand growth not being at par with the surge in addition of power generation capacity.
Gas consumption in the country is majorly dependent on imports, and cooking and transportation segments gets priority in terms of allocation of the fuel. About 167 mmscmd of natural gas was consumed in FY19, with 47% being imported. About 26% of gas consumed in the country was used by the power sector, but the share of power usage has been falling constantly, with only 17% supplied for electricity production in January, 2020.
“ONGC supplies gas to power plants at prices as high as $7.68/million British thermal units (mmBtu), from fuel sourced from off-shore deepwater basins, which makes it impossible to sell electricity at lower prices to discoms,” a senior official from a gas-based power company told FE. “For gas based power to be affordable, it has to be priced at around Rs 3/unit, and to achieve such pricing the cost gas at burner tip should not be more than $5.5-6/mmBtu,” the power ministry had earlier informed the parliamentary committee.
Owing to their ability to start and stop power generation faster than other conventional modes, gas power plants are more suitable for balancing the requirement of the grid, especially with the increasing penetration of intermittent solar and wind power. The parliamentary committee on energy had recommended to use gas-power plants as “peaking units”, to be used during periods of rise in demand. The committee had earlier expressed its dismay on the petroleum ministry and lenders for not having any solution regarding stranded gas power plants. Rajnish Kumar, chairman, SBI, had admitted to the committee that lenders are “groping in the dark” on this issue and with no solution in sight, “we have to write off this investment”.
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