Supply fuel, rejig PPAs for gas-based power projects: industry

ksenia kondratieva Mumbai | Updated on January 13, 2019 Published on January 13, 2019

The government has been lately mulling a ₹18,000-crore support scheme for the gas-based power plants, according to industry sources, to salvage the sector. (file photo)

But “unfortunately, most measures have been short-term rather than long-term”


Power industry experts believe the measures to revive gas-based power projects currently in discussion by the government could work only in the short-term .

That’s because more than half of around 24,000 MW gas-based capacity is stranded mainly due to non-availability of domestic gas. The list of 30 stranded gas based projects, most of which are in the private sector, includes those of Torrent Group, Lanco, GMR, GVK, Astha Power, Reliance Infra and RVK Energy.

The government has been lately mulling a ₹18,000-crore support scheme for the gas-based power plants, according to industry sources, to salvage the sector.

Earlier this month, the Standing Committee on Energy in its 42nd report on stressed/non-performing asserts in gas-based power plants had recommended including exploring gas allocations to stranded plants from ONGC deep-water fields and diversion of domestic gas from non-core sectors to power sector, cost moderation of re-gasified liquefied natural gas (RLNG) as well as re-thinking of introducing free market pricing for natural gas, among other measures.

Interim measures

Industry players, however, feel the government should focus on making gas available for such projects as well as look at changing power purchase agreements (PPAs) to allow these plants to act as peaking plants.

“Unfortunately, most measures have been short-term rather than long-term holistic ones,” Naveen Munjal, Director – Business Development & Commercial (Conventional), CLP India Limited which operates 655 MW gas fired power plant in Bharuch, Gujarat, told BusinessLine.

He added that these measures have been interim ones and “principally driven by the need to arrest the NPAs while the focus should be on the long term measures.

Vivek Sharma, Senior Director – Energy and Natural Resources, CRISIL Infrastructure Advisory, agrees: “While support schemes and financial incentives are positive, they would lend only a temporary relief to such plants.”

Peaking policy

In addition to making gas available for plants, a well-defined peaking power policy along with peaking power-specific PPAs from distribution companies would lead to a more fundamental improvement, Sharma said.

“The Committee’s recommendations to operate gas based plants as peaking plants could be implemented through redrafting PPAs,” Kameswara Rao, PWC Partner (GRID), agrees. He believes any financial sops or subsidies of imported gas could only save few generators, but wouldn’t revive the sector.

“In the current situation when there are no shortages, such a strategy will push other generators out of merit order, and cause them distress. There is no net gain. A better approach is to redraft their PPAs to act as peaking-plants, which will help integrate renewable energy better,” he said.

Gas under GST

The Standing Committee had also suggested bringing gas under GST which, according to CRISIL, would be a positive step since it would reduce tax incidence which currently ranges from 3 to 28 per cent and lower gas price, leading to a more competitive tariff. Currently gas-based plants sell power at the tariff higher than ₹8 per unit — double of average thermal, wind and solar tariffs.

The Committee, in its report, blamed the government for unrealistic projections of availability of domestic natural gas from KG D6 fields and “policy flip-flops” that have “crippled the gas-based power plants consequently making them stranded.” It maintained that since these plants were set up on the basis of the government’s assurance regarding supply of gas, “it becomes incumbent upon the government to help them come out of stress.”

Published on January 13, 2019
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