No salvation in sight for gas-based power plants – India Ratings

India Ratings, a Fitch company, said it sees no chance for a revival in the fortunes of natural gas-based power generation plants in India.

The country saw the setting up of several such plants, especially in Andhra Pradesh, at the turn of the century on expectations of a gas boom from the Krishna Godavari basin in the Bay of Bengal.

However, the KG D6 block — which was supposed to produce at 80-100 MMSCMD — effectively doubling the production of the fuel in India — has seen output fall to single digits due to various reasons.

This has created a belt of ‘stranded’ gas plants in Andhra Pradesh which are too far in land to be serviced easily by ships.

Utilization levels at private plants have fallen to 14.4% last year from 70.5% six years ago.

The government tried to revive these plants last year by asking utilities to buy power from them at Rs 4.7 per kWh.

However, points out India Ratings, the current tariffs for electricity in India are around half of that level, and it would be very difficult to get state utilities to buy power at Rs 4.7 per unit.

“Distribution companies’ appetite to buy power at INR4.7/unit would remain low, considering their weak financial health and access to cheaper alternatives,” it said.

It pointed out that the cost producing electricity from imported gas cannot be less than Rs 2.84 per unit, even if the LNG price is just $5 per million btu.

Even at such low LNG prices, gas power cannot compete with coal power at
Rs 1.92 and imported coal at Rs 2.68.

The possibility of gas projects selling their power through exchanges to meet short-term demand is also low as short-term power prices have reduced to around Rs 2.5 per kWh, “which would not even cover the variable cost of generation.”