Approval to innovative mechanism for utilization of stranded gas based generation capacity
No: --- Dated: Mar, 25 2015
The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has approved a major policy intervention, through an innovative mechanism, to revive and improve utilization of the stranded gas based power generation capacity in the country. This capacity has been lying idle or under-utilized due to shortfall in the production of domestic natural gas in the country.
In order to revive these stranded gas based plants, the mechanism envisages importing Regasified Liquified Natural Gas (RLNG) for supply to these plants so that they can generate power. The mechanism also envisages sacrifices to be made collectively by all stakeholders, including the Central and State Governments by way of exemptions from certain applicable taxes and levies on the incremental RLNG being imported for the purpose. Besides, gas transporters and re-gasification terminals have agreed to reduce their transportation tariff, marketing margin and re-gasification charges on the incremental RLNG. Power developers would completely forego the return on their equity. The Government of India also proposes to provide support to Discoms from the Power System Development Fund (PSDF) through a transparent reverse e-bidding process. This will make the cost of power affordable.
With this arrangement, electricity generation in the country would be enhanced significantly by around 79 billion units, valued at about Rs 42,000 crore. The additional generation would help light up many unconnected households in the country, besides benefitting the public at large, including farmers and poorer sections of the society who have limited access to electricity. This initiative is another key step towards achieving this Government’s commitment of 24X7 power supply to all.
This decision will also help improve grid stability and safety, as gas based plants are ideal for being used as spinning reserve, and for meeting peaking power requirements, as they can be started and shut down at very short notice. Grid collapse of the kind that happened in July, 2012, will be avoided with this measure. Besides, it can support renewable balancing power requirements and enable grid integration of renewable energy. This gains importance especially in the context of India’s aspiration to rapidly scale up renewable generation. Gas based power is also environment friendly and much less polluting than coal based generation.
Reviving these gas based power plants will go a long way in making peak load shortages in the summer months a thing of the past. Many of the stranded gas based power projects are located in the Southern region which is power deficit. With their revival, power shortage in the Southern region will be minimized significantly.
It is felt that the revival of stranded gas based capacity would ameliorate stress on the banking sector. This will kickstart growth and have a multiplier effect on the economy. It would also restore investors’ confidence in the power sector. The mechanism will also result in optimal use of gas infrastructure like gas pipelines and re-gasification capacities in the country, which are currently underutilized.
Out of 24,150 MW gas grid connected power generation capacity in the country, 14,305 MW of capacity has currently no supply of domestic gas and may be considered as stranded. This represents an investment of over Rs 60,000 crore which is at the threshold of becoming Non Performing Assets (NPAs). The balance capacity of 9,845 MW involving an investment of over Rs. 40,000 crore is also working at a sub optimal level based on the limited quantity of domestic gas in the country.
In this context, it may be noted that regarding supply gas to upcoming/proposed power plants, Empowered Group of Ministers (EGoM) in its meeting dated 8.1.2009 had decided that “subject to the availability of Gas, necessary allocations from or RIL KG-D-6 fields will be made to these projects in pipelines including Dabri Power Project as and when they are ready to commence production”. However, due to sharp decline in KG-D6 gas production not only could gas not be allocated, to new gas based projects, but the commissioned capacity that KG-D6 gas allocation also get stranded.
Background:
The need for this intervention has arisen because initially with the discovery of domestic natural gas in the Krishna – Godavari basin, there was an expectation of considerable increase in the availability of domestic gas in the country. Therefore, a large number of gas based plants were set up by power developers, some with firm allocation and others with expected allocation. However, the supply of domestic gas to power plants started declining since 2012 and completely stopped from the KG basin, in March 2013.Since then, these plants have either not been operating at all or are being under-utilized