Govt asks private power firms to fend for gas
The government has conveyed to private power producers that natural gas would no longer be allocated to them and they will have to bid for buying the fuel, leaving gas-based power plants stranded. This is a policy reversal from the United Progressive Alliance regime, under which gas-based power generation, along with fertiliser, liquefied petroleum gas production, and city gas distribution, was identified as a priority sector for allocating gas.
The decision to let private power plants bid for gas rather than get an allocation was conveyed at a meeting of power producers and the government earlier this month. Around 7.5 gigawatt (Gw) of gas-based generation is stranded. Of that, plants with a capacity of 3.5 Gw are facing a gas shortage.
The private power producers had asked the government to reserve the expected gas production in Oil and Natural Gas Corporation’s (ONGC’s) block in the Krishna Godavari (KG) basin for power generation. ONGC had in January come up with a tender inviting bids for sale of natural gas from the S1-VA fields in the KG basin. “The government conveyed that if power producers wanted gas for their plants, they should bid for it,” said a person in the know. ONGC is expected to open the bids next month. ONGC had sought bids for selling 2.5 million metric standard cubic metres of gas per day with a floor price of $5.05 per million British thermal unit and a cap of $6.30 for five years. Gas supplies are expected to commence on April 1, 2018.
The government also allowed a gas procurement scheme designed to help the stranded plants to lapse. The Ministry of Power had in March 2015 introduced a scheme for utilisation of stranded gas-based power generating capacity for two years up to March 2017. Under the scheme, the Centre had envisaged ~75-billion support from the Power System Development Fund for two years for operationalising gas-based power plants. However, only ~15 billion was utilised.
“Gas-based power generation is no more a viable option without government support in the form of gas allocation or tax concession,” said an industry expert. Since renewable power is unpredictable, there is a need for power plants that can ramp up to meet the balancing power requirements.
India has 25,510 megawatt of installed gasbased capacity, of which the private sector owns about half. Most of this capacity came up when Reliance Industries’ (RIL) KG-D6 was expected to produce 80 million metric standard cubic metres per day (MMSCMD) by 2009. RIL’s gas production did not match up to the company’s estimates. The KG-D6 supplied only 32.37 MMSCMD of natural gas in 2016-17.
An empowered group of ministers made an allocation of 63.17 MMSCMD of KG-D6 gas to the power sector in May 2008 and October 2009, while deciding that the gas produced under the New Exploration and Licensing Policy would go to the power sector after meeting the requirements of the fertiliser sector.