Gas price hike or no hike? Power sector is doomed

Gas based power plants are commercially unviable at current levels of operation

Before announcing a hike in gas prices, the government should have at least looked at the ground realities, especially in the power sector.While the govt may have announced its intention to hike gas prices post April 2014 to $8.4/mmbtu, the reality is that power companies and consumers are not even in a state of consuming power at the current subsidised rate.

 

A recent report says that thermal power plants are running at its lowest capacity in 20 years. This comes in the first quarter, which is usually the peak season for power demand. Two reasons have been cited for the poor performance. One is non-availability of fuel and the inability of cash-starved distribution companies to buy electricity from plants using costly imported fuel.
 

 

As a result of this, gas based power plants operated at only 29% of the capacity in the first quarter and 22% in the previous month and coal based power plants operated at 68.75% in the previous quarter and 64% in June 2013. Coal based units are operating below the critical 68.5% mark, above which they can avail of benefits. Power plants were operating near the 68.5% mark during the crisis period of early 1990s.
 

Most coal based power plants, which are fed with subsidised fuel from Coal India, are not even able to recover their operating costs. Gas based plants on the other hand are commercially unviable at current levels of operation.Even when electricity is available, distribution companies are not purchasing it as they do not want to buy high cost power and sell subsidised power to the consumer thus adding on to their losses. The report says that NTPC could not generate 6 billion units because there were no buyers for the power produced.
 

When gas prices were hiked,Finance minister had said that he would see to it that power sector was not affected and the incremental cost would be absorbed by the government. What prevents the FM from providing the same subsidies today, especially when the fuel cost is low? The sector is operating at a two decade low and we are waiting for a gas price hike to ensure power is available to the consumers. The hypocrisy is apparent.