Union Budget 2019: Discoms buying from gas units to now get subsidy

After a hiatus of two years, the Centre will restart a revival scheme for gas-based power units. For this, the Union Budget has allocated Rs 1,035 crore to the Power System Development Fund (PSDF), double the allocation last year. 

The money would be used for subsidising state-owned power distribution companies’ (discoms’) purchase of electricity from stranded gas-run power units.

The revised scheme would be soon finalised for Union Cabinet, said officials. The contours would be the same as in 2016. “This is in line with the recommendations of the High Level Empowered Committee (HLEC) on stressed power units. The earlier round helped more than half the gas-run capacity in the country. The current round would assist the rest,” said an official.

Of the 24,150 Mw of gas-based power generation capacity, 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 quantity of gas required to run these plants is 116.59 million standard cubic metres a day (mscmd). Total supply of domestic gas in 2017-18 was 22.8 mscmd and this resulted in the decline of average plant load factor (PLF) to a mere 22 per cent. The remaining capacity (9,845 Mw), involving investment of about Rs 40,000 crore, is working at a sub-optimal level.

“The committee recommends that the ministry of power and ministry of petroleum and natural gas may jointly frame a scheme for revival of gas-based power plants, on the lines of the earlier e-bid RLNG scheme (supported by PSDF),” went the HLEC report.

The Centre in 2016 floated a reverse e-auction process for power plants to avail of subsidy to buy costly imported gas — Regasified LNG (RLNG). 
 

This involved a reverse bid for the subsidy amount to come from the PSDF, to purchase the RLNG. The bid amount depicted the amount of subsidy support the power generators seek from the government.

The bidding was on the e-bidding platform built by MSTC. The eligible bidders indicated the total incremental electricity they would generate by using the e-bid RLNG. The companies also quoted the subsidy they required to ensure the net purchase price for discoms to buy that power remains low, without exceeding the target PLF.

The four rounds were held in June 2015 and in March, May, and September 2016, respectively. After that, the Centre discontinued the process. Now, however, the government is planning to disburse subsidy to the discoms for purchasing power from gas units. 

Under the earlier arrangement, every stakeholder in the supply chain gave up a part of their return on operations. While the central government did not levy service tax on gas sourcing, the power plant operators had to forgo return on equity. GAIL sourced the imported gas and with Gujarat State Petronet gave up 50 per cent of the transmission rate and 75 per cent of their marketing margin in supplying imported RLNG.