Ind-Ra: Gas-Based Power Plants Await Revival

The plant load factor (PLF) of gas-based power plants (GBPPs) is likely to decline further in FY18, says India Ratings and Research (Ind-Ra). The expectation is based on the a) closure of the scheme for the revival of GBPPs by way of government subsidy through the power system development fund, b) higher variable cost of generation than that for coal-based power plants and other alternatives c) availability of lower-cost power on the power exchanges and d) no improvement in the domestic gas production.

The Indian government had announced a subsidy scheme in FY16 to revive GBPPs, leading to PLFs of GBPPs marginally improving to 23% in FY17 from a low of 21% in FY15. The subsidy scheme added only 2%-3% to PLFs over FY16-FY17 compared to the FY15 PLF. The implementation of the scheme led to the additional generation of about 15 billion kWh in FY16 and FY17, which is below 1% of the total electricity generation.

 

The private sector owned GBPPs were the worst hit (PLFs; FY17: 14.4%; FY11: 70.5%) due to the lack of long-term power purchase agreements (PPAs). The presence of PPAs with the central and state government owned plants allows them get some schedule in the merit order dispatch.

Ind-Ra estimates that the variable cost of the power generated from imported regasified liquefied natural gas (RLNG) at landed prices as low as USD5/mmbtu is likely to be INR2.84/kWh, which is higher than the variable cost of generation from other fuels such as domestic coal (INR1.92/kWh) and imported coal (INR2.68/kWh).

The possibility of a GBPP running on spot RLNG and selling the short-term power through the exchanges is also low as short-term power prices on the exchanges have reduced substantially to around INR2.5/kWh, which would not even cover the variable cost of generation.

The domestic gas supply has not improved since FY14. The production declined to 87.4mmscmd in FY17 from 97mmscmd in FY14 and from the peak level production of 143mmscmd in FY11. Thus, it is difficult to revive GBPPs as RLNG would always remain a costlier option than domestic gas, due to the additional cost of liquefaction, transportation, regasification etc.

Even if the subsidy scheme for GBPPs is made available again, distribution companies' appetite to buy power at INR4.7/unit would remain low, considering their weak financial health and access to cheaper alternatives. Further, the majority of stressed GBPPs belong to the private sector, and sometimes do not enjoy long-term PPAs. Also, some plants do not have the flexibility to declare availability basis alternative fuels or RLNG, impeding the full recovery of fixed costs. The credit profile of private sector owned GBPPs has deteriorated and several such projects have already applied for debt restructuring. In the absence of a long-term solution entailing gas availability at cheaper rates, the credit profile of these projects would continue to reflect the underlying fuel price, fuel availability and off-take risks.

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