Gas based power plants to sell only to discoms with PPAs

Natural gas under administered pricing mechanism itself expected to witness increase in price post 2014

The ministry of petroleum and natural gas has tightened the end use of power generated by the gas based power plants so as to ensure profitability of such ventures in the wake of high gas prices.

According to officials, the power generated by power plants run by clubbing and diversion of natural gas will be sold only to entities who have entered into power purchase agreements (PPAs) with tariff rates fixed by tariff regulator.

Prior to this tightening of norms, the power generated by such plants was to be sold to state distribution companies with two without signing of PPAs at tariff fixed by tariff regulator.

While earlier it was a preferred suggestion to sell it to distribution companies (discoms) with PPAs, now the ministry has decided to make it a rule for the gas based power plants.

Officials said that dues for use of power for various states are a huge burden both on power generators, banks etc. On one hand, these power generators have to pay high price for natural gas which is going to go up. The natural gas available under administered pricing mechanism itself is expected to witness an increase in price post 2014.

While the issue of priority allocation to power and fertiliser sector is yet to finalised, the power plants will have to depend on natural gas out of APM as well for some part of their need and those may have to pay even more.

Officials explained that this is because some part of the natural gas will be imported and that price will be market determined if not considered under APM. Either way, with an increase in natural gas, the end use marketing of power has to generate revenues.

This has to be ensured right at the beginning of the project or else for no payment of dues by the state distribution company, the power generator will default in all its other payments and it will have ripple effects.

If the government is subsiding part of the natural gas price, the usage of that gas has to generate revenues , or else the APM will incur losses and be a burden on already existing current account deficit, explained officials.

Therefore the end use norm for marketing of such power has to be linked to healthy revenue model.

Clubbing and diversion of natural gas is an arrangement whereby an owner of two or more power plants is authorised to club its gas supply of two or more power plants in such manner so as to improve the plant load factor (PLF) with corresponding increase in total power generation.

PLF is average capacity utilisation of a plant. As a precondition, clubbing should only be done if it leads to higher production.