With Lok Sabha elections barely two months away, Planning Commission deputy chairman Montek Singh Ahluwalia has suggested hiking the overall tariff of gas-based power by 50-85 paise per unit to help production of 28 GW of electricity, which the consumers should treat as an “opportunity cost.”
Ahluwalia believes that allowing this tariff hike to satisfy the peak demand would offset the need for subsidising Liquefied Natural Gas (LNG) based generation of electricity or introduction of differential pricing. Ruling out subsidy would pave the way for the regulators to consider a tariff hike and the states would fall in line, he told power minister Jyotiraditya Scindia in a letter on February 6.
He said of the 20 GW of installed capacity, 5.5 GW are stranded owing to paucity of gas supply from the KG D6 fields, while the power stations are reluctant to use Re-gassified-LNG (R-LNG) as it is expensive.
With the price revision of domestically produced natural gas slated from April onwards, electricity generators using local gas would start finding it difficult on the cost factor.
While domestic gas is priced at $4.5-5.5 per mmbtu besides pipeline charges and taxes, the R-LNG spot prices are hovering at $12-16 per mmbtu besides similar charges. Ahluwalia argued that the current power crisis in the country exemplifies that a generator cannot ensure long-term price guarantees of fuel cost and it will have to be a pass through. Also, the generators should be asked to procure gas within the parameters of established gas indices along with incentives to procure cheaper gas.
Enabling a tariff hike would breathe in viability for 8GW upcoming gas-based electricity also besides, the 20 GW installed capacity.
“Adopting this approach avoids the need to subsidise LNG for power or introduction of differential pricing, both of which present problems. Implementing this solution requires complementary action on peak pricing to be taken by individual regulators. No one will do it if they think the central government can be persuaded to provide gas cheaply or to subsidise it. Once that option disappears, states will themselves act to encourage the process,” Ahluwalia wrote in his letter to Scindia.
Given the shortage of domestic gas, all LNG-based power plants should be asked to operate only as peak load plants, while peak pricing regulations should be developed by the Central Electricity Regulatory Commission (CERC) which would be emulated by the state regulators to compensate plants operating in the peak hours. As a mater of policy, in the future gas should be preferably allocated to peaking power plants and not for base load operation, Ahluwalia suggested.
According to the CEA, gas based power capacity of 18,963 MW (as on July 2013) is operational at 27.2 per cent due to poor fuel supplies, while a capacity of 7,565 MW are under various stages of construction.