The Planning Commission has suggested allowing private power plants to sell 50% of their output in the open market instead of extending subsidy to commercial electricity producers for using imported gas as fuel. The power ministry is in the process of moving the Cabinet to seek gas price pooling — mixing costlier imported gas with cheaper domestic gas to work out an average cost. Price pooling is expected to revive 24,000 mw gas-fired capacity — idling for want of domestic fuel — but will require a subsidy of Rs 24,339 crore. "The payment of subsidy of Rs 24,339 crore, even though spread over three years, is difficult to justify considering these plants are being run on normal business consideration," the panel has said in a memo penned in response to the gas price pooling proposal.
"Instead of giving the subsidy, since the domestic gas availability may not be large for them, we should permit them to sell 50% of the power generated in the open market and the remaining 50% under the PPAs (power purchase agreements)," the panel has said. The Commission's argument appears to be based on the higher price realized in the open market. Selling half the power in the open market at a higher price will help producers cover the cost of imported gas. This will do away the need for subsidy to keep down the price of power produced using imported gas.
The panel has also pointed out another pitfall of the gas price pooling mechanism to support open-market sale. "Even after pooling and averaging gas prices, power tariff levels for 20014-15 and 20015-16 are projected to be Rs 7 and Rs 7.50 per unit, respectively," the panel has said.
Given the prevailing condition in the electricity market, it would be difficult to sell power at such a high price unless the plants have PPAs that allow them to pass on the higher cost of fuel, the commission has said, adding the idea behind gas price pooling would be defeated if power remains unsold.
The panel has suggested that the provision for open-market sale should be allowed till 2015-16 after which the plants would be asked to sell all power through PPAs. Imported gas costs nearly three times that of domestic gas and raises the tariff beyond the means of state utilities, thus making it unviable for power producers who are forced to idle their plants.