The Union power ministry has sought a subsidy of Rs 5,000 crore over two years to support gas-based plants which would have to pay double for natural gas prices from April 1.
It has proposed subsidy be given to state distribution companies for compensating the rise in tariff they would have to pay to gas-based plants.
In a note prepared for the Cabinet Committee on Economic Affairs, the power ministry said, "Gas based power stations would need to be supported by the government through an appropriate subsidy mechanism. Subsidy to state discoms has been proposed for the difference in actual tariff and Rs 5/unit for Rs 2014-15 and Rs 5.50 for 2015-16."
The power ministry has also sought financial restructuring for the power plants which are stranded for lack of natural gas in the country.
"The indicative subsidy to be borne by government would be about Rs 3,621 crore in 2014-15 and Rs 2,056 crore in 2015-16 to support administered price mechanism gas-based power plants," the note reads.
Gas plants with about 20,000 mw capacity would be hit with the prices for all domestically produced gas including conventional, shale, coal bed methane doubling to $8.4 per million metric British thermal units (mmBtu).
The increase in price would make generation unviable vis-à-vis other fuel sources such as coal.
At present, the cost of power produced with blended imported coal comes to about Rs 3.45 per unit. With the hike in the natural gas price according to the Rangarajan Committee formula, the cost of gas-based power will shoot beyond Rs 5 per unit, making it unattractive state discoms.
The power ministry has also asked for three years moratorium and waiver of penal interest for projects that are running on low plant load factor due to no or less availability of natural gas in the country. While there is 20,000 mw of installed gas based capacity in the country, another 6,000 mw newly built capacity is stranded because of unavailability of natural gas.