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India gets power boost from 58% drop in gas prices

There is now hope for India's natural-gas-fired power plants which have a 24,000 MW capacity, as prices of petroleum and natural gas have fallen

Amit Bhandari | IndiaSpend  |  Bengaluru 

India gets power boost from 58% drop in gas prices

The Dabhol Project – once a showcase of foreign investment and state-of-the-art technology – owes Rs 8,500 crore to a group of banks including IDBI Bank, State Bank of India, ICICI Bank and Canara Bank, and has been idle since 2013 on India’s Konkan coast, 160 km south of Mumbai.

Over the past two years, the 1,967-megawatt (MW) project has generated no electricity. Not only is the entire investment at risk, the shutdown of the plant–fired by relatively clean-burning natural gas–starves of much-needed power, as IndiaSpend had reported.

To use a cliché, this is just the tip of the iceberg.

Including Dabhol, has 24,000 MW of natural-gas-fired plants, a tenth of its power generation Many of these plants are either idle or operating at a fraction of their rated This means investments worth billions of dollars are at risk.

There is now hope for these stranded assets because of and have fallen in global markets.

The price of liquefied (LNG) has fallen 58%, from $18.3 per million British thermal units (mmbtu) in April 2014 to $7.7 per mmbtu in September 2015–mirroring the drop in crude oil prices. As a result, the price of gas-based electricity has also plummeted, making it attractive to some consumers. For instance, there is a proposal to supply electricity from the Dabhol project to Mumbai’s suburban railway system at Rs 5 to 5.5 per unit, starting November 1, 2015.

The gas-power sector is beginning to show improvement. For September 2015, India’s gas-fired power plants operated at 25.4% of their rated capacity, also called the plant load factor (PLF). This may not seem much, considering that coal- and nuclear-fuelled power plants operate at 60% to 80% of

But it is an improvement from 2014-15, when gas-fired power plants operated at 20% of capacity. This means if they had the capacity to produce 100 units of electricity, they produced 20 units.

 

Table 1: Gas, Coal And Nuclear-Power Plants: Capacity Used
  September 15 April-September 15 April-March 2105
Gas 25.4% 21.8% 20.8%
Coal 63.4% 60.4% 64.8%
Nuclear 66.9% 75.1% 80.5%

Source: Central Electricity Authority

Why is important to India’s economy

Most gas-fired power plants were built after 2002, when major natural-gas discoveries were announced in the Krishna-Godavari basin, first by Reliance and later by other companies, including ONGC and Gujarat State It emerged that the projected gas supply was too optimistic, leaving these plants without fuel.

Importing natural gas, shipped in as a liquid–liquefied natural gas or LNG–was too expensive for these plants; electricity generated from imported LNG would have cost upwards of Rs 10 per unit, 200% more expensive than coal-generated electricity, which costs Rs 3.25 per unit (NTPC, financial year 2014-15) and accounts for nearly three-quarters of India’s electricity needs.

India gets power boost from 58% drop in gas prices

A number of power-generation companies, including Lanco, GVK, GMR and Torrent Power, and the banks that loaned them money, floundered. This is a key factor holding down India’s infrastructure sector.

If international gas continue to remain low, these investments could be recovered. This could happen, because of some global developments:

  • Japan is restarting some of its nuclear power plants, which will bring down demand for LNG in that country, the world’s biggest customer for LNG.
  • The US, the world’s largest producer of oil and gas, will soon start to export.
  • Iran, with the world’s second-largest gas reserves, may soon become a part of the global gas market, as sanctions on its industry are rolled back.

To benefit from the trend, needs to lock-in gas supplies at low This will ensure power plants continue to have cheap fuel in the future.

India, however, will also have to grapple with other related issues, including the financial mess at state electricity boards and the problems of free-power and power-theft. 


(IndiaSpend is a data-driven, public interest non-profit)

 

First Published: Wed, October 14 2015. 10:46 IST
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