Economy

Switching to gas for firing power plants not easy

Richa Mishra/ Shobha Roy Hyderabad/Kolkata | Updated on October 24, 2021

cap   -  The Hindu

Both availability and volatility in natural gas prices could pose a stiff challenge

Shifting to gas as a source to fire power plants may not be an easy option for the government as both the availability and the cost of the blue fuel could pose a challenge for electricity producers and consumers.

Domestic natural gas producers, transporters and marketers feel that the rhetoric of switching to gas when there is a coal shortage might sound like a good proposition in theory, but it may be difficult to translate this into practice given the volatility in prices of natural gas.

In fact, the Association of Power Producers (APP) has requested the Power Ministry that the domestic gas which is being auctioned should be put to limited auction amongst power sector players. This, according to them, will yield twin benefits – would help to revive 24 GW of stranded gas-based projects and reduce our dependence on imported coal and save precious foreign exchange.

 

Nearly 70 per cent of the power produced in the country is generated using coal as the main feedstock, while hydro, gas and nuclear account for around 16-17 per cent of the generation. The government had hiked the price of domestically produced natural gas by 62 per cent. The price of domestic natural gas was at $2.9 per million British thermal unit (mmBtu) from October 1, 2021 to March 31, 2022. Simultaneously, the price for gas produced from difficult fields such as deep sea, which is based on a different formula, was hiked to $6.13 per mmBtu from $3.62 per mmBtu.

According to a report by Crisil Research, while coal-based power generation rose by around 19 per cent on a y-o-y basis, generation from other conventional sources witnessed around 16 per cent decline annually. Gas generation, which accounts for around 3-4 per cent of monthly generation on an average, saw a 26 per cent decline annually as gas prices have increased by nearly 1.5-2.5 times (contracted and spot, respectively for LNG).

At the recently concluded India Energy Forum by CERAWeek, Manoj Jain, CMD, GAIL (India) Ltd, said that such volatility (in gas prices) may not be a good sign for a country like India.

Long-term deals

“The Indian gas market traditionally relies more on long-term contracts (almost 70 per cent) while around 30 per cent is on spot basis. So, nearly 70 per cent of the market is largely unaffected,” he said. “However, severe volatility and change in crude prices may impact even the long-term contracts. Industries such as fertiliser, refineries and glass ceramic depend on long-term contracts.”

“It is typically the power sector which is largely getting affected because of high volatility. They do not have predictability in the long term, so they are not able to tie up for long-term gas. When large volatility kicks in, the new industry which wants to shift to gas becomes little hesitant and it creates a little setback,” Jain added. Price rise lead to a decline in power generation through conventional sources.

Meanwhile, the unprecedented increase in coal-based power coupled with supply shortage during monsoon and less stock build up in April-June 2021 has led to the depletion of coal stocks in power plants. The high international prices of coal affected imports and supply of power, even under PPAs, by import-based power plants has reduced by almost 30 per cent. However, domestic-based power supply has gone up nearly 24 per cent in the first half of the current fiscal.

The reduction of imported coal has been compensated by domestic coal for power generation, thus increasing the demand for domestic coal further. Around 104 coal-fired thermal power plants have either critical or super critical level of stocks as on October 21, as against only 16 plants which were in critical/super critical stock position (holding less than six days’ stock) during the year-ago period.

 

 

The average stock of coal in power plants is at about four days at present and the average daily stock is close to 7.69 million tonne (mt).

However, the situation has marginally improved over the last one week compared to 115 plants having critical/super critical stock levels with a total stock of around 7.29 mt as on October 10 this year.

According to a senior industry official, the average coal stock position at the power plants is expected to improve to six-to-seven days and the average daily stock is expected to increase to 10 mt by the end of this month.

Published on October 24, 2021

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