Govt to subsidise imported gas-based power generation

To revive gas-based power generation, the government on Wednesday approved a mechanism for importing gas for power generation and supply of such power through a subsidy grant.

The government approved a reverse bidding process through which power plants will quote a rate, the subsidy for which will be released through the Power System Development Fund. The fund was for grid stability and security and as gas-based plants were best suited to meet the peak load demand, the fund would be used for subsidising such power, Piyush Goyal, Union minister for power and coal, said after a Cabinet briefing.

The subsidy will be available to distribution companies. Goyal said the bidding, to be conducted by MSTC, would begin at Rs 5.5 a unit. Such a reverse bidding auction would help revive 31 projects, with a capacity of 14,305 Mw. Besides, it would also aid 12 additional power plants, currently working at less than 30 per cent of the plant load factor.

POWER PLAY

• Through reverse bidding, power plants will quote a tariff, the subsidy for which will be released through the PSDF
   
• There will be no change in the domestic gas allocation to existing users
   
• Re-gasified liquefied natural gas will be imported for supply to these plants to generate power

Unlike a proposal for gas pooling, in this case, there will be no change in the domestic gas allocation to existing users. “Domestic gas is already allotted and their allocation will not be touched,” Goyal clarified.

Power developers participating in the bidding will completely forego the return on equity. According to the mechanism approved by the Cabinet Committee on Economic Affairs, re-gasified liquefied natural gas (RLNG) will be imported for supply to these plants to generate power. Gas imports will be undertaken by GAIL India and Gujarat State Petronet.

“The mechanism also envisages sacrifices to be made collectively by all stakeholders, including the central and state governments by way of exemptions from certain applicable taxes and levies on the incremental RLNG being imported for the purpose. Besides, gas transporters and re-gasification terminals have agreed to reduce their transportation coats, marketing margin and re-gasification charges on the incremental RLNG,” said an official statement.

The government estimates with this arrangement, electricity generation in the country will be enhanced by 79 billion units, valued at about Rs 42,000 crore.    

Goyal said the revival of stranded gas-based capacity would help meet operational and maintenance cost of developers, besides enabling repayment of debt. “This will kick-start growth and have a multiplier effect on the economy. It will also restore investor confidence in the power sector. The mechanism will also result in optimal use of gas infrastructure such as gas pipelines and re-gasification capacities in the country, currently underutilised,” said in a statement.

Of the 24,150 Mw of gas grid-connected power generation capacity in the country, 14,305 Mw has no supply of domestic gas. On this front, an investment of about Rs 60,000 crore is at the threshold of becoming a non-performing asset. The remaining capacity (9,845 Mw), involving an investment of about Rs 40,000 crore, is working at a sub-optimal level, based on the limited quantity of domestic gas in India.

On January 8, 2009, an empowered group of ministers had decided “subject to the availability of gas, necessary allocations from Reliance Industries’ KG-D-6 fields will be made to these projects in the pipeline, including the Dabri power project, as and when these are ready to commence production”. However, owing to a sharp decline in KG-D6 gas production, gas couldn’t be allocated to new projects.

The need for intervention has arisen because initially, with the discovery of domestic natural gas in the KG basin, it was expected the availability of domestic gas in the country would increase considerably. Therefore, a large number of gas-based plants were set up by power developers, some with firm allocation and others with expected allocation. However, the supply of domestic gas to power plants started declining from 2012; in March 2013, supply from the KG basin stopped completely. Since then, these plants have either not been operational or are under-utilised.