The Gas Crisis Hitting Power Sector

In its latest press release, the Central Electricity Authority (CEA) has said that developers should not set up power projects based on gas. The circular also said that the domestic gas production is expected to go down from 42.67 mmscmd in FY12 to 27.64 mmscmd by FY13 and to 24.22 mmscmd by FY14. Such a drastic reduction in domestic gas production will not leave any room for the existing gas projects as well. The government has exempted gas imports by the power sector, providing some hope for the operators. However, one need to understand that the extra cost that they will incur from the gas imports will impact their operating margins and their profitability in turn. This underlines the gas crisis in the power sector and disappoints investors, who are already wary on the sector. 

Of the total capacity of 190592 MW in India, gas-based capacity is about 9.5%, i.e. 18093 MW. In the last one year, the total gas-based capacity has increased by a mere 2%, which is far less when compared to the growth rate of the total generation capacity (11%) and that of the coal-based generation capacity (14%). In terms of actual generation, the gas-based plants in the country declined by 5.88% in Jan 2012 and by 12.64% in Feb 2012. The plant load factors (PLF) have also declined from the level of over 60% in Jan 2011 to 50% in February 2012, indicating severe depletion of the domestic gas supply. 

Companies like NTPC, Reliance Power and Torrent Power will see themselves in troubled waters, given the fact that significant capacity is gas-based. Reliance Power has already set up and synchronized a 2400 MW gas-based plant in Samalkot, but the gas supply for the same remains questionable and the project has not yet been commissioned. 

Beside these, GVK Power, GMR Infra, Tata Power and Lanco Infratech will also feel the heat in their respective gas-based stations. A media report has quoted GVK’s management as saying that the government has asked them to hold off their capacity expansion plans until a clear picture emerges on gas availability.

We believe that gas-based generation will hit a new low in this quarter, with the PLF getting hampered. Investors may take a note of this while investing.