State-owned banks, forced to write-off loans to operators of stranded gas power plants, are weighing heavy on the Indian public purse. A parliamentary panel urged the Government to take action, saying that “since this stranded gas-based capacity involves a significant amount of public money, it cannot be allowed to become junk.”
Prioritizing KG D6 gas for power gen
“Since these gas-based power plants were set up on the basis of the government’s assurance regarding supply of gas, it becomes incumbent upon the government to help them come out of stress,” it stressed, urging the Government to priorities gas supplies to power plants.
Dwindling domestic gas supply from the Krishna Godavari Dhirubhai 6 (KG D6) block and comparatively high prices for LNG imports have led to affordability issues. Cheaper fuel prices for other power sources—coal, solar, wind, and hydro—mean that the gas-fired plants can’t pass on these costs without losing their competitiveness.
Mixed feelings over price deregulation
Deregulating fuel prices has for long been touted as a panacea for India’s domestic gas shortages. However, the parliamentary panel has advised against it:
“The committee is of the opinion that because of shortage in availability of gas and demand being much higher than supply, the free-market pricing will result in exorbitant prices,” the report reads.
Domestically produced gas is currently priced according to a formula that is criticized by producers such as BP. Analysts at the Saudi-based Kapsarc institute have suggested to either index Indian upstream gas prices with international markets of using opportunity costs linked to LNG import parities or weighted average of fuel oil and coal.
‘Postage stamp’ transportation pricing could introduce simplicity, and substantial investment in gas transportation infrastructure would be required to realize President Modi’s vision of a ‘gas-based economy’.
Electrification requires massive new-builds
Striving to bring electricity to all Indian households, the Government is expected to add between 600 GW to 1,200 GW of additional new power generation capacity before 2050. To meet its climate goals and reduce air pollution, much of the new-build capacity should be based on natural gas or renewable energies.
India’s installed generating capacity totals 357.875 GW, with over 79.8% of that total generated from fossil fuels. Coal accounts for the lion’s share of India’s power mix, contributing 200,749.5 MW, or 56.1%, the share of natural gas has fallen to 24,937.22 MW, or 7.0%.
Renewables are gaining ground with large hydro power installation at 45,399.22 MW, or 12.7% market share, followed by wind power at 36,089.12 MW, or 10.1%, and solar power at 29,409.25 MW, or 8.2%.