Can Approval For Higher Gas Prices For RIL Spell Doom For Gas-Based Power Generators?

At long last, the Cabinet Committee on Economic Affairs (CCEA) has approved higher gas price for Reliance from April 2014. This comes with a rider that the company has to file a bank guarantee as surety against the gas-hoarding charges, if proved correct. This bank guarantee will be to the tune of incremental revenue derived by the company owing to the increase in gas price. Following the CCEA approval, the path has been cleared for the notification of increased gas price from April 2014, as approved by the Cabinet in June 2013 at around USD 8.4 per mmbtu from the current level of USD 4.2/mmbtu.

Though this is a big positive for companies like RIL, ONGC, OIL and GAIL, it is not good news for power producers owning gas-based power plants. Even in the current scenario, generation companies are finding it hard to sell power produced from gas-based plants, as the per unit cost therein works out to around Rs 4.50 per unit as against Rs 2.50 per unit for coal-based plants.

“Even if expensive coal is used then also our per unit cost is around Rs 3-3.50 per unit. So, at the current prices too, gas-based power plants are not feasible”, shares a senior official of NTPC. Recently, Arup Roy Choudhury, CMD, NTPC, in conversation with DSIJ noted,“It is up to the government to decide about the fate of our gas-based capacity as we don’t have any role to play. But we have made it clear that even at a price of USD 4.2 per unit of gas, I and finding it hard to sell power. So, we all can guess what the scenario may be at USD 8.4 per unit”.

Similar is the situation for other gas-based power producers in the country, whose plants stand idle due to non-availability of gas, particularly from the KG basin. If sources are to be believed, today around 16000 MW of gas plants are sitting idle and the current average PLF (plant load factor) for these plants is as low as 25%. In such condition, even if there is an increase in the supply of gas, there won’t be any improvement in the situation at the increased prices as far as gas-based power capacity is concerned. The situation goes totally haywire considering the cost. “At USD 8.4 per mmbtu, the per unit cost of generation will spurt to Rs 6.50-7. It is just impossible to find any buyer at such a price”, informs the official.

Power generators are demanding that the government arrange for some alternative channel to provide cheap gas for the existing plants. The authorities had shown some inclination towards this by proposing gas pooling with imported LNG to help generators in the past, though the efficacy of this measure would be proven eventually. Power generators are not able to operate due to non-availability of gas, and their investment is becoming a sunk cost day-by-day. If the gas supply improves ahead, they will still not be able to run these plants as there would be no demand for such expensive power. Thus, it is a big dampener for power companies, which are already reeling due to the tariff regulations proposed by the CERC.