While the offer to supply liquefied natural gas (LNG) at $ 9.5 per unit to gas-based power projects of India Gas Solutions (IGS) is going to pose a tough challenge for the other players planning to set up LNG facilities on the Andhra coast, the question of feasibility is a matter power companies are still unclear about.
“It all boils down to how much price a merchant power producer can command at the exchanges if he has to run the plant with LNG that is procured at $9.5 per mBtu (million British thermal unit),” a senior official of a large private power company told Business Standard.
Since transactions at power exchanges are also being closely monitored by governments, this aspect becomes critical for future usage of LNG by the power producers, according to him. The only time the producers sold power at a high price through exchanges was during the Tamil Nadu elections, he said.
Admitting that IGS, a joint venture between Reliance Industries Ltd (RIL) and the UK-based BP Plc, has offered to supply LNG at the earliest possible time, the official, however refused to comment on the price stating the negotiations were still going on.
“At the said offer price of $ 9.5 per mBtu, the cost of power could be anywhere between Rs 6 and Rs 8 per unit. The government has to take a call whether it can afford to buy power at this level because it has to foot the bill if the consumer refuses to pay for it,” said G Raghuma Reddy, director (commercial) of Andhra Pradesh’s Central Power Distribution Co.
The government may not favour procuring large quantities of power produced with high cost fuel like LNG, according to energy department officials.
The highest price that was accepted by Andhra Pradesh Transmission Corp Ltd (APTransco) at the recently concluded short term power purchase agreement (PPAs) was Rs 5.9 per unit, though most of the 2,000 Mw power was contracted at a price of between Rs 4 and Rs 5 per unit, said energy department officials.
Purchasing high cost power during emergencies is different because it adds only 10-20 paise to the overall supply cost.
“For companies like us whether we can use LNG at the price offered by RIL or not is going to be the matter of government discretion. Because the variable cost has a pass through mechanism under the two part tariff structure,” M S P Rama Rao, managing director of Konaseema Gas Power Ltd, told Business Standard. Under its existing long-term PPA, the company currently sells power at the rate of around Rs 2.5 per unit to state power utilities.
The price offered by IGS is said to be way below of what others have been offering now. According to industry sources, public sector player GAIL (India) Ltd had offered to supply LNG at $ 11-12 per mBtu to the power companies located on the AP coast. However, the companies are also expecting to get LNG at $ 7-$ 8 per mbtu after 2014 once the American shale gas begins to reach the Indian shores.
In addition to IGS, other players such as Reliance ADAG-Shell joint venture, Petronet LNG Ltd, Gail and the US-based VGS group have proposed to set up LNG terminals at Kakinada and near-by locations of the AP coast.