Gas-based power plants to have limited role by 2030: report

New Delhi, June 25

The role of gas-based power generation, which currently accounts for around 2 per cent of India’s power generation, may become limited to just providing grid flexibility by FY30, a study by the Institute for Energy Economics and Financial Analysis (IEEFA) has projected.

The IEEFA in its global liquefied natural gas (LNG) outlook 2024-28 pointed out that the Power sector’s LNG consumption has been low due to the high costs of gas-based power.

From 2022 to 2023, at least half India’s 62 gas-based power plants did not generate any electricity, although the government will continue to use gas plants for peak demand requirements in 2024, it added.

“In the longer term, the government does not intend to build any new gas-based power plants. Meanwhile, renewables capacity is rapidly expanding and targeted to reach 500 GW by 2030. Renewables generation, including hydropower, is expected to increase to 40 per cent of the generation mix by 2029-30. Over that time, gas-based generation may be limited to a peaking role as a tool for grid flexibility, rather than for baseload power,” it said.

Gas-based generation

Gas-based power currently accounts for 1.8 per cent of the generation mix while renewable energy has grown to a 15.6 per cent market share. According to government officials, gas-based power costs Rs 13-14 ($0.16-0.17), while renewable electricity costs just ₹2.4 ($0.029), IEEFA report said.

Gas-based power plants have an installed capacity of 24.8 gigawatts (GW) and account for around 2-3 per cent of India’s total power generation, as per government data.

The plant load factor (PLF), or capacity utilisation, of gas-based power plants rose to 21.4 per cent in April 2024, a four year high for the month. The PLF for May 2024 is awaited.

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In FY24, the PLF of gas-based plants rose to 14.8 per cent from 11.5 per cent in FY23. They produced 31.30 BU against a target of 32 BU, cumulatively consuming 235.78 MSCMD natural gas.

International Energy Agency projects India’s gas demand to grow 7 per cent y-o-y in 2024 calendar year, while Gas Exporting Countries Forum (GCEF) predicts usage to grow at 6 per cent y-o-y. Higher gas consumption for power generation is among the reasons fuelling the growth.

Gas supply

Regarding gas supply, the report said that India is investing in new pipeline and import terminal infrastructure. As of September 2023, roughly 10,009 kilometers (km) of gas pipelines were under construction, along with 24 MTPA of proposed new LNG regasification capacity.195 If built, new terminals would bring total import capacity to 71.7 MTPA.

Notably, however, utilisation rates for pipeline and gas infrastructure have remained low. From April to November 2023, all but one regasification terminal operated at rates below 35 per cent. The Dahej terminal operated at 94 per cent and was the only one to operate above 35 per cent.

“City gas demand also is increasing at a slower rate than distribution network connections, indicating that the utilization of distribution infrastructure could fall. For example, the number of city gas distribution network connections increased 38 per cent in 2022 and 2023, but gas consumption increased just 0.1 per cent over the same period,” it added.

India is aiming to expand the city gas distribution network to the entire country by 2032.

The report pointed out that sustained demand growth will be challenged by LNG volatility.

“LNG prices below $10 per mBtu will likely encourage some rebound of demand in the region. However, price volatility may continue to challenge sustained demand growth in price-sensitive South Asian countries, particularly during periods of heightened buying activity by other regions. New sales and purchase agreements (SPAs) in Bangladesh and India do not begin until 2026, adding uncertainty to rapid demand growth forecasts in the short term,” it added.

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The government of India has set ambitious targets to increase the country’s overall natural gas consumption from 51.3 million tonnes per annum (MTPA) to 139 MTPA by 2030, with the majority of growth expected to be met by LNG imports.

In 2022, however, LNG imports fell 17 per cent due to LNG price spikes, demonstrating the country’s sensitivity to volatile prices. As markets eased in 2023, India’s LNG demand rebounded by 9 per cent to 22 MTPA. However, demand remains well below levels seen before the Russian invasion of Ukraine.