"When cost plus regime makes way, gas-based project developers may find it difficult to sell electricity from their plants as gas is costlier than coal. Power from gas projects costs developers Rs 2 per unit as compared to about Rs 1.5 per unit from coal-fired projects," a power ministry official told media.
Power secretary Uma Shankar confirmed the development. "Once a developer sets up gas-based project, how does he sell power? Earlier they used to sign power purchase agreements with distribution companies. But now they will have to be competitive in pricing," he said.
If competitive bidding is introduced, gas projects will not be required to compete with coal-fired projects, he said. The power ministry is considering both case-I and case-II bidding procedures for determining tariff from gas-based projects.
Under case-I bidding, distribution utility invites tariff-based competitive bids for required capacity but does not play any role in procuring land, fuel and regulatory clearances. This is unlike case-II bidding -- followed for awarding ultra mega power projects, where government assumes the role of a facilitator.
Power ministry officials are likely to deliberate the issue with Central Electricity Authority (CEA) next week.
GMR Energy chief executive officer Raaj Kumar said, "Any kind of tariff-based bidding is welcome for consumers as well as developers. It also reduces risk exposure from fluctuations in gas price and currency. Typically, when gas price is at $ 6 per million metric standard cubic meters per day (mmscmd), power costs around Rs 2.2 per unit to developers as against coal based generation at Rs 1.2 per kWh."
Meanwhile, an official in Lanco Infratech also welcomed the move. The official said that in next five years only 60 mmscmd extra gas was likely to be available from domestic resources that could feed additional generation of about 8,000-mw. Presently, India's demand for natural gas is pegged at 170 mmsmcd of which 142 mmscmd is sourced from domestic fields and rest is imported.
The country's natural gas production from home fields is expected to touch 151 mmscmd by 2011-12 and 186 mmscmd by 2012-13. Reliance Industries Ltd operated D6 block in KG basin is at present producing 55-60 mmscmd. The production is expected to touch only 80 mmscmd by 2012-13. Maharashtra State Power Generation Corporation, Torrent Power, GVK Power, GMR Energy, and Gujarat Powergen Energy Corporation are some of the companies that have submitted request for gas allocation for projects coming in the 3-4 years.
CEA, planning body for the power sector, has received over 104 applications from government and private project developers seeking gas supply to fuel nearly 1,18,000-mw capacity. The projects would require gas supply of 570 mmscmd at 90 per cent plant load factor. All the projects are proposed to be operational in the 12th plan period starting 2013. Coal and gas linkages to power projects are based on recommendations made by CEA.
The government has decided to weed out non-serious private companies seeking gas for power projects with a stiff grading system in place. As per the proposal, only companies with firm land, water allocation, sound financial background and equipment sourcing contracts would be preferred for gas linkages.