In what would prolong the problems for existing and new gas-based power plants of firms such as GMR, GVK, Lanco, Torrent, Reliance Power and state-run NTPC, the finance ministry has rejected a power ministry proposal to provide subsidy to these units to keep tariffs low.
The North Block is against any such subsidy for these plants even as they resort to extensive use of expensive imported regassified liquified natural gas or RLNG.
In a Cabinet note, the power ministry had proposed a total subsidy of over Rs 25,000 crore for gas-based power plants between now and 2015-16 to enable these units remain viable and competitive, even after pooling low domestic gas supplies with expensive RLNG.
Sources said the finance ministry, in its views on the note, while rejecting the subsidy formulation, has asked the power ministry to see whether additional cost of power generation by using imported RLNG can be allowed as pass-through in tariff on the lines of imported coal price allowed to thermal power plants.
“Subsidy could turn a big burden in future considering the volatile nature of the gas market. At a time when exercise is on towards fiscal consolidation, additional subsidy is not maintainable,” said a government official privy to the development.
The finance ministry's disapproval for subsidy would be a big blow for about 18,714 MW of existing gas-based capacities and 7,815 MW of upcoming new capacities being operated/constructed by a host of public and private sector companies.
All existing gas-based power plants are running at an average plant load factor of 27.8% while Vatwa project of Torrent, Rithala project of NDPL, Dhuvaran and Utaran projects of GSECL, Sugen project of Torrent, Kakinada project of GMR, and Essar's captive power project in Gujarat are without any gas, as all supplies from Reliance Industries KG-D 6 have completely stopped.
“If finance ministry disallows subsidy for gas-based power plants, it would mean death knell for all new and upcoming projects. Pooling domestic gas prices with imported RLNG without any subsidy would mean electricity tariff would jump to around Rs 10.50 per unit in 2013-14 making gas projects unviable in the merit order dispatch,” said a private sector power producer.
A power ministry official said that if the finance ministry insists on not releasing the subsidy, the next best option could be adoption of a formula suggested by the Planning Commission.
The commission has said the subsidy burden could be reduced substantially if gas-based plants are allowed to sell 50% of their power in the open market while they meet the supply obligation under PPAs for the remaining 50% capacity.
Out of a total power generation capacity of over 2,26,000 MW in the country, gas-based capacity is just about 8% with installed capacity of 18, 714 MW. Even this capacity is running at average PLF of just about 28% on APM, PMT and non-APM gas as supplies from KG-D 6 have completely stopped.
Newly commissioned 1,334.5 MW of gas capacity is completely idle as they are substantially based on KG-D 6 gas.
The power ministry said that the pooling mechanism with a acceptable tariff of Rs 5.50 per unit in 2013-14, Rs 7 in 2014-15 and Rs 7.50 in 2015-16 would need the government to provide a subsidy of Rs 2,498 crore, Rs 10,992 crore and Rs 10,849 crore, respectively.
The North Block is against any such subsidy for these plants even as they resort to extensive use of expensive imported regassified liquified natural gas or RLNG.
In a Cabinet note, the power ministry had proposed a total subsidy of over Rs 25,000 crore for gas-based power plants between now and 2015-16 to enable these units remain viable and competitive, even after pooling low domestic gas supplies with expensive RLNG.
Sources said the finance ministry, in its views on the note, while rejecting the subsidy formulation, has asked the power ministry to see whether additional cost of power generation by using imported RLNG can be allowed as pass-through in tariff on the lines of imported coal price allowed to thermal power plants.
“Subsidy could turn a big burden in future considering the volatile nature of the gas market. At a time when exercise is on towards fiscal consolidation, additional subsidy is not maintainable,” said a government official privy to the development.
The finance ministry's disapproval for subsidy would be a big blow for about 18,714 MW of existing gas-based capacities and 7,815 MW of upcoming new capacities being operated/constructed by a host of public and private sector companies.
All existing gas-based power plants are running at an average plant load factor of 27.8% while Vatwa project of Torrent, Rithala project of NDPL, Dhuvaran and Utaran projects of GSECL, Sugen project of Torrent, Kakinada project of GMR, and Essar's captive power project in Gujarat are without any gas, as all supplies from Reliance Industries KG-D 6 have completely stopped.
“If finance ministry disallows subsidy for gas-based power plants, it would mean death knell for all new and upcoming projects. Pooling domestic gas prices with imported RLNG without any subsidy would mean electricity tariff would jump to around Rs 10.50 per unit in 2013-14 making gas projects unviable in the merit order dispatch,” said a private sector power producer.
A power ministry official said that if the finance ministry insists on not releasing the subsidy, the next best option could be adoption of a formula suggested by the Planning Commission.
The commission has said the subsidy burden could be reduced substantially if gas-based plants are allowed to sell 50% of their power in the open market while they meet the supply obligation under PPAs for the remaining 50% capacity.
Out of a total power generation capacity of over 2,26,000 MW in the country, gas-based capacity is just about 8% with installed capacity of 18, 714 MW. Even this capacity is running at average PLF of just about 28% on APM, PMT and non-APM gas as supplies from KG-D 6 have completely stopped.
Newly commissioned 1,334.5 MW of gas capacity is completely idle as they are substantially based on KG-D 6 gas.
The power ministry said that the pooling mechanism with a acceptable tariff of Rs 5.50 per unit in 2013-14, Rs 7 in 2014-15 and Rs 7.50 in 2015-16 would need the government to provide a subsidy of Rs 2,498 crore, Rs 10,992 crore and Rs 10,849 crore, respectively.
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