Pooling of Gas Prices - An Optimistic approach to Keep Gas Based Power Plants under Optimal PLF

Labels: , , , , ,
Power sector is facing acute shortage of gas and many plants are either stranded or operating at very low PLF, whereas Fertilizer sector is getting almost its complete requirement of gas. Therefore, Ministry of Power had proposed the Empowered Group of Ministers (EGoM) on pricing & commercial utilization on NELP gas for allocation/ supply of gas to Power sector on equal priority with Fertilizer sector or if not equal priority, then it was proposed to cap allocation/ supply to Fertilizer at 31.5 MMSCMD and allocate entire additional domestic gas coming into the system to (after meeting shrinkage requirements) power sector till its full requirements are met.

EGoM have decided that the total domestic gas supply to fertilizer sector be capped at their present level of 31.5 MMSCMD as their full demand is being met. The EGoM further decided that all additional domestic gas from the year 2013-14, 2014-15 and 2015-16 will be allotted to power sector to help improve generation. EGoM will review the gas production scenario thereafter for deciding supply of additional domestic gas that would be available from 2016-17 onwards to Fertilizer and Power sectors.

Additional Domestic Gas that can be made available to Power Sector for the years 2013-14, 2014-15 and 2015-16, if Allocation/ Supply to Fertilizer capped at 31.5 MMSCMD is 1.125, 3.980 and 6.895 mmscmd respectively. This entails a net shortfall of 70.515, 66.54, 59.64 mmscmd during the same same period respectively and this is calculated based on the PLF of 70/75.

Analysis on Pooling of Domestic gas with RLNG for Power sector
Even after considering capping of allocation/ supply to Fertilizer at 31.5 MMSCMD and allocating the entire additional domestic gas to Power sector, there will be a net shortfall for Power sector. This shortfall can only be met by importing RLNG and pooling this with the price of the domestic gas and providing subsidy to Power sector to make gas based generation viable at operating the plants at technically sustainable PLF. At present, 12,561 MW of APM based plants (i.e. plants that have been getting domestic gas other than KG D6 gas) are getting 17.26 MMSCMD domestic gas and are operating at average PLF of 27.7 percent (29 percent if Spot RLNG is included). 4,842.5 MW predominantly dependent on KG D6 (2,478 MW fully dependent) but are badly affected due to nil supply of gas from KG-D6. Further, 1334 MW newly commissioned gas based capacities are lying idle without any gas allocation. The present price level of Domestic gas is around US$ 4.2 / MMBtu, which shall almost double in April, 2014 as per the recent CCEA approval of the new gas price formula.

Analysis for the balance period 2013-14
For the balance period of 2013-14, it is proposed to allocate the additionally available 1.125 MMSCMD gas (as indicated by MoP&NG) to the 4,842.5 MW predominantly dependent on KG D6 (2,478 MW fully dependent/ substantially dependent) & 1334 MW newly commissioned gas based capacities which are without any gas allocation. Further, by adding 6 MMSCMD of RLNG to these plants, the weighted average price of gas would be US$ 11.43/ MMBtu and the average PLF of around 25.54 percent can be achieved. However, the indicative total cost of Generation would increase to INR 10.47/ unit, which would be extremely high. Considering a viable level of maximum Total tariff of INR 5.50/ unit that may be despatchable, the indicative Subsidy to be borne by Government would be INR 3788 Crore for the balance 6 months period of 2013-14.

Analysis for the period 2014-15
From April, 2014, the domestic gas prices will be revised as per the CCEA approved new gas price formula. The new gas price will be computed every quarter and will be dependent on international LNG prices and the trading hubs like Henery Hub and NBP, thus will be quite high and volatile. For analysis purpose, an indicative price of US$ 8.0/ MMBtu has been considered.

For 2014-15 and 2015-16, it is proposed not to change the allocation/ supply of domestic gas to APM based plants. However, additional RLNG may be added into the pool to increase their average PLF. It is proposed to allocate the additionally available domestic gas to the plants which are fully & substantially dependent on KG D6 gas, newly commissioned plants without gas allocation and some plants which can be commissioned. For 2014-15, it is proposed to allocate the additionally available domestic gas 5.11 MMSCMD (1.125 + 3.98, as indicated by MoP&NG) to 4,842.5 MW predominantly dependent on KG D6 (2,478 MW fully dependent/ substantially dependent) & 1334 MW newly commissioned gas based capacities that are without any gas allocation and 3000 MW of new power plants that are ready for commissioning. Further, by pooling with around 7 MMSCMD RLNG to these plants, the pooled price of gas would be US$ 10.32/ MMBtu and the average PLF can be achieved around 25.82 percent. However, the indicative total cost of Generation would increase to INR 10.32/ unit, which would be extremely high. Considering a Total tariff of INR 7.0/ unit, the indicative Subsidy to be borne by Government would be INR 7379 Crore.

For the APM based plants, the present supplies under their existing agreements will continue. Along with the supplies of existing Long term RLNG quantities of 1.98 MMSCMD, additional 8 MMSCMD of RLNG may be pooled in this group. Thus, the Pooled price becomes US$ 10.14/ MMBtu and the PLF levels can be improved to 40.03 percent. However, the Total cost of generation would increase to INR 8.46/ unit, which is quite high. Considering a Total tariff of INR 7.0/ unit, the indicative Subsidy to be borne by Government would be INR 6435 Crore. Thus, the Total subsidy in the Year 2014-15 to be borne by Government would be INR 11098 Crore.

Analysis for the period 2015-16
For 2015-16, it is proposed to allocate the additional available domestic gas of 12 MMSCMD (1.125 + 3.98 + 6.895, as indicated by MoP&NG) to 4,842.5 MW predominantly dependent on KG D6 (2,478 MW fully dependent/ substantially dependent) and 1,334 MW newly commissioned gas based capacities that are without any gas allocation and all 7,815 MW of new power plants that will get commissioned. Further, by pooling it with around 12 MMSCMD of RLNG for these plants, the Pooled price of gas would be US$ 10.96/ MMBtu and the average PLF of around 31.79 percent can be achieved. However, the indicative Total cost of Generation would increase to INR 9.53/ unit, which would be extremely high. Considering a Total tariff of INR 7.50/ unit, the indicative Subsidy to be borne by Government would be INR 8265 Crore.

For the APM based plants, the present supplies under their existing agreements will continue. Along with the supplies of existing Long term RLNG quantities of 1.98 MMCSMD, additional 8 MMSCMD of RLNG may be pooled in this group. Thus, the Pooled price becomes US$ 10.24/ MMBtu and the PLF levels can be improved to 48.3 percent. However, the Total cost of generation would increase to INR 8.52/ unit, which is quite high. Considering a Total tariff of INR 7.5/ unit, the indicative Subsidy to be borne by Government would be INR 2658 Crore. Thus, the Total subsidy in the Year 2015-16 to be borne by Government would be INR 10924 Crore.

Justification for the Proposal
In view of the severe gas shortages and resulting techno-commercially unviable PLF, EGoM has approved allocation of additional domestic gas to Power sector for the years 2013-14, 2014-15 and 2015-16 by capping supplies to Fertilizer sector. However, even with this additional gas, there will be significant shortfall in power sector. This shortfall can only be met by importing RLNG and pooling this with the price of the domestic gas and providing subsidy to Power sector to make gas based generation viable and achieve technically sustainable level PLF. However, the Total cost of generation will increase significantly because of the Pooling of domestic gas with RLNG. This will make Gas based generation totally unviable in the merit order dispatch. In Power sector, there are hardly any takers of electricity at more than INR 4.50- 5.00/ Kwh in recent times. To bail out the financially sick Discoms, Government of India has recently approved financial restructuring plan. Hence, the gas based power stations would need to be supported by Government through appropriate Subsidy mechanism in the gas pool.

This will prevent the stranded Gas based capacities and the new Gas based projects to become NPAs. The investment sentiments in the Power sector and the confidence of the bankers will be restored. The PLF of 12,561 MW of APM based plants would increase from present avg. PLF of 27.7 percent to 42.53 percent in the year 2014-15 and beyond. This will help increase power generation from present level of 27 BUs to ...BUs. It will also enable RGPPL to be functional so that the assets restructured in 2009 under the aegis of Gol may avoid being classified as NPA. The power requirement of the country can be immediately met by utilizing the already created 24,189 MW gas based assets. Moreover, the demand of Southern region, which is yet to be connected to the National grid, can be met immediately. Gas based power generation is a preferred mode worldwide because of various benefits mainly its environmental friendliness.

Pool Operation Mechanism:
Regarding the pool operation mechanism, it is proposed to appoint GAIL as 'Pool Operator' in view of the following reasons:
  • GAIL is a public sector company and is well established in global market as a LNG Buyer and has already finalised LNG Contracts of about 7-8 MMTPA based on JCC / Brent and Henry Hub indexation.
  • Being a Central PSU, Government guidelines can be implemented.
  • Government nominee from MoPNG/ MoP can also be made a part of the Empowered Committee that approves procurement of LNG from international sources.
GAIL can act as the aggregator wherein, monthly pooled price for the proposed pools during the years 2014-15 and 2015-16 shall be declared by GAIL (as per guidelines of MoPNG/ MoP) in its capacity as the pool operator. The existing domestic gas suppliers may continue to sell gas to the contracted power plants. However, the payment to all such sellers shall be made as per contracted price by GAIL as the pool operator and the existing contracts of power plants will need to be modified only to this extent. The subsidy of the Government will also be channelised through the Pool operator. In turn, GAIL shall make the RLNG available to the power plants at competitive prices so as to limit the Total cost of power generation within the proposed reference limits. All gas based power plants shall make payments to the pool operator to enable it to make payment to individual gas suppliers. However, the legal implications of appointing GAIL as 'Pool Operator' in view of the existing Gas/ RLNG Sale & Purchase Agreement (GSPAs) and Gas Transportation Agreement (GTAs) amongst various entities will need to be examined and settled.

Financial Implication
In case Pooling of gas/ RLNG is implemented, there will be an out go of Government subsidy. If we consider limiting the Total tariff of power to INR 5.50/ unit in 2013-14, INR 7.0/ unit in 2014-15 and INR 7.50/ unit in 2015-16, the amount of Subsidy to be borne by the Government shall be INR 3788 Crore (for balance 6 month period of 2013-14), INR 11045 Crore and INR 10924 Crore, respectively during these years. These Subsidy calculations are estimates only based on projections and the actual Subsidy in a year will depend upon the actual supply of gas/ RLNG at prevailing level of prices during that year. The actual Subsidy may be even less depending upon the consumption of costlier RLNG. However, Government, if so desires, may limit the subsidy in the respective years to the proposed subsidy levels in this proposal.

During the years of 2013-14, 2014-15 and 2015-16, by pooling with the additionally available domestic gas with RLNG, gradually all the power plants can be run, thus avoiding their present stranded situation. However, the average PLF levels are still not technically viable for individual power plants. Hence, it will be important to optimize the operation of the power plants by clubbing/diversion of gas and rostering the gas, as is being done till the time the domestic gas availability is sufficient enough.

Author Profile

No comments :

Post a Comment

Subscribe to: Post Comments ( Atom )