RLNG subsidy to help fuel 9,000-MW power plants

The subsidy support to purchase expensive imported re-gassified liquefied natural gas (RLNG) can help light up 9,000-MW stranded power plants, potentially making such projects service interest obligations for 2 years, says rating agency CRISIL.
"CRISIL estimates that at prevailing gas prices, this can potentially enable 9,000 MW out of 14,300 MW of currently stranded gas-based power plants to operate at a plant load factor (PLF) of 25-30 per cent -- good enough to service their interest obligations for about two years," CRISIL said in a statement.
The e-auction for allocation of imported RLNG under the Ministry of Power's scheme for gas-based power plants is set to begin tomorrow.

The scheme makes available imported RLNG at a reduced price, and there will also be a tariff subsidy that will be determined through reverse auction. However, it requires companies to forgo their return on equity.
"The success of the scheme will hinge on the ability of power plants that are allocated the imported RLNG to find buyers for their electricity. That's because, as per the scheme, the net sale price of electricity to discoms has been fixed in the Rs 4.7 to Rs 5.5 per unit band, well above the current average prices in a market plagued by low demand. It is also higher than the average Rs 3.5 to Rs 4.5 per unit that discoms paid last fiscal," the statement read.

The success will also depend on whether players can get a moratorium on principal payments from lenders for the next two years. Consequently, companies with superior station-heat rates (or needing less fuel to generate one unit of electricity), low interest costs and ability to obtain favourable repayment terms from lenders are expected to be more competitive at the auction, it added.
The scheme targets 9,845 MW of plants that already received domestic gas but operated at sub-optimal levels last fiscal. However, these plants are unlikely to show keen interest at the auction because the amount of gas allocated to them is limited, and they already enjoy a favourable availability-based tariff structure that facilitates cost recovery, it said.