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Power sector may obviate coal, says Tata report
BS Reporter / Mumbai June 24, 2007
The preference of the Indian power sector for coal based plants - with over half of the overall capacity of 132,000 MW is coal-based and the rest split between hydro, gas, diesel, nuclear and renewables - may change as stricter norms for carbon emissions emerge, and as alternative sources of generation like solar and nuclear power become more cost-competitve, says a report by the Tata Strategic Management Group (TSMG).

"Coal is the preferred choice of fuel for India's power sector. But impending changes in the energy mix could change fuel preferences in the next decade," says Raju Bhinge, chief executive, TSMG.

According to report, the fuel mix is based on current capital and power generation costs. Coal is a clear winner at this point in time, even after factoring in costs of transmission and distribution and other technical costs. In fact, almost 70% of the 78,000 MW of generation capacity proposed to be added in the 11th plan (2007-2012) is coal-based.

The report points out that if natural gas is made avaialble in sufficient volumes and supplied at prices close to $3.5 per million metric British thermal unit (mmbtu), it could lead to a major swing in generation capacity in favour of gas.

"Gas becomes viable for brownfield projects with prices below $5 per mmbtu. For greenfield generation projects, natural gas becomes competitive with non-pithead coal at $3.5 per mmbtu," says the report.

Gas prices in the country currently vary from over $1-$11 per mmbtu, depending on whether it falls within controlled pricing category or is bought off the spot market, though the plan is to move to a "market determined pricing" ultimately.

The Ratnagiri Gas and Power Private (RGPPL) has already agreed to supply power at Rs 3.10 per unit, with a gas supply from Petronel LNG for $ 4.83 per mmbtu. On the other hand, against a generation cost of Rs 2.72, power generated from coal is generally sold at Rs 4.97 per unit, informed an industry expert.

The other factor that could loosen the dependence on coal could be solar power. So far, high capital investment has kept this form of energy away from mass application. However, capex required has been steadily declining in the sector, and could touch $2 per watt by 2010 and further down to $1.5 per watt by 2012, TSMG informs.

Added to decreasing capital investment in alternative and renewable energy resources like solar, wind, nuclear and hydro, the cost of carbon emissions will predictably be on the rise, hitting coal-based plants worst of all. Carbon prices may vary within a band of $15 to $25 per tonne of carbon dioxide in the near future.

The TSMG report predicts that if the cost of carbon emission is factored in, the delivery cost of power from gas-based generation becomes preferable to non-pithead coal, if emission cost exceeds $15 per tonne of carbon dioxide.

 
Tata Power, which has recently bagged the contract to build a 4,000 mw plant at Mundra in Gujarat based in imported coal, however has no immediate plans to change its fuel mix, given the uncertainity over the availability and pricing of gas.

"We feel that there would be no need for change of fuel for our plants as we have already tied up for coal on a long-term basis. Prices of imported coal might actually come down in future. I feel imported coal-based plants would still be the future of power generation in India," said Gerry F Grove-White, executive director and chief operating officer of Tata Power, the country's largest private sector power generator.

"If environmental concerns and norms are taken into account, pithead plants have more cause for concern because of higher ash-content. They pollute more than imported coal-based plants," he added.

 
 
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