Gas supply shortage short-circuits power output

The problem is impacting capacity addition targets, as firms hold back or postpone earlier plans.

The shortage of gas is a growing problem for India’s power sector. Not only is the plant load factor (PLF) of power plants declining, but the shortage is also spreading a cloud over the expansion plans of companies.

PLF indicates the utilisation of a plant’s generation capacity. In recent months, this has been falling for gas-based power plants. In August, the fall was to 59.4 per cent as against the peak of 77 per cent in April last year (and 67 per cent in April this year), due to the lack of gas (see chart). "It is also not viable for companies to procure gas from the spot market in the present scenario, where the (power) tariffs are already lower. For gas-based plants, the difference is Rs 1-1.5 per unit in cost, compared to coal," says Rabindra Nath Nayak, senior analyst at SBI Cap Securities.

There is, for instance, the cut in production from Reliance Industries’ D6 gas field in the Krishna-Godvari basin (KG-D6). The output has fallen from a peak of 60 million standard cubic meters per day (mscmd) to about 45 mscmd.

“Gas supply to the power sector has been dismal. The sector received an average supply of less than 75 per cent of the requirement of 82 mscmd (at 90 per cent PLF),” says Rohit Singh who tracks the power sector at IDBI Capital. Of India's installed power generation capacity of 1,73,000 Mw, about 18,000 mw is gas-based. The shortage meant a loss in power generation worth 3,200 mw in August.

Among companies seeing a decline in their gas-based PLF are GMR and GVK. These are large players, with almost the entire capacity based on gas. Their PLF was significantly hit in August. “If the gas is not available, what can we do? The fuel risk is with the company,” says Isaac George, chief financial officer, GVK Group. Inability to deal with the situation has hampered the PLF and returns on some of these operating plants. GMR, GVK, NTPC, Torrent Power and Lanco together have 7,837 Mw of gas-based generation capacity. Lanco has 26 per cent exposure to gas-based projects; its 716 Mw Kondapali power plant recorded about 44.1 per cent PLF in August, as against 73 per cent last year. Torrent has operating capacity of about 1,700 Mw, of which 76 per cent is based on gas. "In the near term, we see lower fuel availability for its gas-based stations, impacting the return on equity from its generation assets," says Nayak.

Low on power (in Megawatts)
	Total capacity	Gas based capacity	Gas capacity  as % of total	Gas capacity in pipeline
GMR	823	823	100	750
GVK	908	908	100	1,600
NTPC	35,400	4,000	11	3,650
Torrent Power	1,648	1,252	76	—
Lanco	3,292	854	26	742
Source: Companies, Analysts’ reports

The case with India’s largest power generation company, NTPC, is similar. It has 90 per cent of its installed capacity of 35,400 Mw running on coal. For its 4,000 Mw of gas-based capacity, it has seen lower PLF. During the quarter ended June, say analysts, the company received 12 mscmd, about 23 per cent lower than its requirement; the shortfall was mainly caused by a decline in supply of 2.37 mscmd from KG-D6. "This fall from KG-D6 would keep the supply to NTPC under stress," says Rohit Singh, who tracks the power sector at IDBI Capital.
 

Gas supply projections (in mmscmd)
	FY10	FY11	FY12E	FY13E
RIL KG-D6*	22.3	30.0	30.0	38.0
Others	36.2	36.5	36.7	42.1
Total supply	58.5	66.5	66.7	80.1
Gas requirement  (90% PLF )	84.5	97.2	98.9	102.5
Effective  availability (%)	69.3	68.4	67.4	78.2
E: Estimates;   * power sector allocation Source: Motilal Oswal Securities

This trend of lower gas supply is also impacting upcoming gas-based capacity, since companies are going slow on expansion plans. For 2012-13, analysts have slashed gas production estimates from KG-D6 to about 55 mscmd, against their earlier estimates of 120 mscmd, though this is higher than the 45 mscmd of August. Currently, about 9,000 Mw of gas-based power projects are under construction or in the planning stage. Of this, 4,000 Mw is expected to be operational in 2011-12 and requires 16.4 mscmd of gas at 90 per cent PLF. Since supply is expected to remain static, analysts say the gap in demand and supply would only widen. GVK has suspended its expansion plan for the JP and Gautami power plants, after spending Rs 130 crore on these projects.