The doubling of gas price by the government may not immediately affect gas-based power plants as availability of the fuel is currently a bigger issue than the price.
Even after the increase, the domestic gas is not expensive than the imported liquefied natural gas (LNG), which many plants use.
“Unless the availability of gas in the country improves, the overall impact of the price hike on gas-based power companies will not be too much as the current available capacity is very less,” said Kameswara Rao, partner in-charge – energy and utilities, PricewaterhouseCoopers.
So, it’s not a time for alarm bells to start ringing, he said.
Moreover, at $8.4 per million metric British thermal units (mmBtu), the revised gas price, the cost of power from gas-based power plants would increase to about Rs 6 per unit from the current average of Rs 3.8. This will still be cheaper for those who have shifted to expensive alternate fuels or those who are paying a higher fixed cost.
“Those who have shifted to alternate fuels or buying on short term are still paying Rs 7-8 per unit. This is still expensive than power produced with a higher gas price,” Rao said.
Experts also said very less portion of India power generation capacity is gas-based currently (roughly 12-13% out of around 212 gigawatts). Even out of this, very less is operational because of lack of availability of gas and some having switched over to expensive fuel such as naphtha or even diesel.
Also, with elections next year coupled with the summer season, even short-term and merchant tariffs will rise from the current lows of Rs 2.30 per unit.
“The tariffs will again go back to Rs 5-6 per unit making gas-based power generation competitive with merchant and short-term contracts,” said Raghavendra Upadhyaya, senior vice-president, Independent Power Producers Association of India.
Amish Shah and Abhishek Bansal, analysts with Credit Suisse, said power developers realise that gas pricing and subsidy for the power sector are likely to be time-consuming issues.
“They are now focused on improving gas availability for their projects rather than pricing,” they said in a report on Monday.
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