Feasibility of price pooling for gas-based power generation in India: A reality check!

Abstract

Gas-based power projects are on the verge of becoming bad assets for the country. While nearly 14 GW of gas-based projects are non-functional, 9 GW of projects operates at a suboptimal level of 25% or less. Domestic gas supply to power sector seems a distant dream with no major gas discovery in sight. In a bid to kick-start the plants and to enable the project developers to service their debts and cover up the operational expense, govt has started a scheme of reverse e-auctioning for supplying sport RLNG to power plants. This plan will help revive some of stressed gas projects in the country with the help of govt subsidy out of power system development fund. While this is a welcome step from the government and would function well in constantly depreciating spot RLNG price, the scheme provides only short-term visibility for operations and servicing of debt. The long-term operations and viability of these plants would remain dependent upon ramping up production of gas from domestic sources. At a time where long-term RLNG price hovers around USD 7 to 8 per million British thermal units (MMBTU), govt has to rethink its strategy and should move away from indirectly bailing out of gas-based power projects and open the sector for competition with necessary policy support. Gas price pooling is long debated in India, and finally, it was made effective for fertilizer sector from 1 July 2015. While the decision to introduce poling price concept would go a long way for fertilizer units’ revival, the debate is still on for its implementation for the power sector. The feasibility of such an option for the power sector would be accessed in this paper along with government’s preparedness in addressing the concerns of various stakeholders.