Cabinet nod for financial support to revive stranded power projects

In a bid to revive Rs 60,000 crore of stranded power projects, the Cabinet today approved a financial support to the private companies to help them use costly imported gas (LNG) for generating electricity.

Thirty-one power stations with a combined capacity of 14,305 megawatt, which are languishing because of want of gas, can bid for support from the Power System Development Fund for generating 30 per cent of their installed capacity, called plant load factor, using imported liquefied natural gas (LNG).

Power companies seeking lowest support from PSDF, after considering an electricity tariff of Rs 5.50 per unit, will get the first right over LNG, whose delivered price too will be slightly reduced by asking importer and transporter to take a hair cut in marketing and operational cost, Power Minister Piyush Goyal said after a meeting of the Cabinet Committee on Economic Affairs.

While the private power stations will bid for the financial support, the actual money from PSDF, which collects fines from states for grid indiscipline, will go to the distribution company.

PSDF currently has accumulated a kitty of Rs 9,500 crore but the CCEA had decided to cap the support at Rs 3,500 crore in 2015-16.

Besides helping generate 79 billion units of electricity, valued at about Rs 42,000 crore, the arrangement would help the stranded assets repay debt but the promoters will have to forego return on equity, he said.

Currently, out of the 24,150 MW of gas-based power plants, 14,305 MW capacity of projects are stranded because of limited avaialbility of domestically produced natural gas and costly imported LNG.

Another 5,500 MW of gas based power plants are operating at less than 30 per cent of their installed capacity. These too would be benefited with the new arrangement, which will kickstart in 30-35 days.

Goyal said there will be no change in allocations of domestic gas. Also, the proposal to average out price of cheaper domestic gas with costlier LNG to make the fuel price uniform to all projects has been put in cold storage as of now.

"Through a reverse e-bidding process, assistance would be offered to gas-based power plants...Which have been shut for years, but who have the capacity of producing clean electricity," Goyal said.

Gas-based plants have the ability to quickly ramp up and scale down and are useful in meeting peak demand.

Goyal said state gas utility GAIL India Ltd and Gujarat State Petroleum Corp (GSPC) have been designated importers of LNG.

The new arrangement would help 5000-5,500 MW of gas plants in southern India, particularly Andhra Pradesh and Telangana.

"The Cabinet has cleared a reverse bidding formula through which at one specific tariff gas based plants can make and supply electricity on imported gas. And for that supply the company which will claim the lowest subsidy, who will bid for the lowest support price, that company will get support of PSDF," he said.

These plants will be able to work on 30 per cent Plant Load Factor (PLF) through which they can make payment for of the gas cost, maintenance charges and also the bank interest repayment obligations.

"But promoters will have to forego their return on equity," he said. "Promoters will have no profit."

This will help increase electricity generation in the country, he said adding 10 million standard cubic meters per day of LNG would be supplied under this arrangement during the 5-month monsoon season and 18 mmscmd in the rest of the year.

"The price of Rs 5.50 is a preliminary price based on which we will start the bidding process. In case we find there is a scope to further reduce it, there is an empowered Group called the Empowered Pooling Committee which will then be empowered to take a decision whether the price needs to be reduced, whether we can increase the PLF, whether we can import more," Goyal said.

He said the CCEA has decided that GAIL and GSPC will be permitted to import gas on spot basis from international market and supply that gas based on demands from gas plants.

In an official statement, the government said the CCEA has approved a major policy intervention through an innovative mechanism to revive and improve utilisation of the stranded gas-based power generation capacity in the country.

"This capacity has been lying idle or under-utilised due to shortfall in the production of domestic natural gas in the country," it added.

To revive these gas-based plants, the mechanism envisages importing 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," the statement said.

Gas transporters and re-gasification terminals have agreed to reduce their transportation tariff, marketing margin and re-gasification charges on the incremental RLNG.

The Centre proposes to provide support to Discoms from the Power System Development Fund (PSDF) through a transparent reverse e-bidding process, which 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," it said, adding that the initiative would help achieve the 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."

The government said that reviving these gas based power plants would 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 minimised significantly," the statement said.

The revival of stranded gas based capacity would ameliorate stress on the banking sector and also kickstart growth and have a multiplier effect on the economy.

"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," the statement said.