Conventional generation capacity addition of 12,160 MW during 2010-11, even though short of the 21,441 MW target, is the highest recorded for any year so far. The contribution by the private sector has increased significantly from 8.66 per cent of the total installed capacity in March 2003 to 23 per cent in July 2011. The momentum gained in attracting investment for capacity addition, however, is experiencing rough weather on the fuel front.
‘Power For all?'
Deepening fuel crisis, on account of uncertainty in the availability of domestic coal, imported coal and natural gas, coupled with escalating prices, is currently the major hurdle in capacity addition in the power sector. If it is not appropriately remedied without further loss of time, the country's economic growth will be put in jeopardy and the Government vision of “Power For All by 2012” will remain a distant dream, even by the end of the 12th Plan (2012-2017).
Attracted by the lucrative merchant power opportunities, most independent power producers (IPPs) have acquired certain degree of exposure to merchant power generation.
The acute shortage and rising price of fuel (both domestic coal and natural gas) have depressed the plant load factor (PLF) and margin, besides degrading investment sentiments for the power sector. Apprehensive of the possibility of funding becoming a non-performing asset (NPA), financial institutions and lenders have tightened the conditions for sanctioning new loans and further disbursement against sanctioned debts.
Revising targets
The IPPs are revisiting their business models by factoring in the risk of declining tariff and uncertainties of fuel availability leading to diminishing enthusiasm to establish new merchant power plants. The fuel factors have affected more than 40,000 MW operating and upcoming capacity. Under these circumstances, the possibility of achieving the 12th Plan target of 100,000 MW appears bleak. The Ministry of Power is understood to have already revised the target to 75,538 MW.
Coal will continue to be the dominant fuel for the power sector. Natural gas has only supported about 18,000 MW of power generation. Drop in gas availability in the KG D-6 block from 60 MMSCMD to 45 MMSCMD has created a crisis for operating the existing gas-based power stations and those under construction.
Diversion of gas supply from non-core sectors to the priority sectors of fertilisers and power will only help gas-based power plants to operate at around 50-60 per cent PLF.
The balance requirement is, however, to be supplemented by blending with the costlier RLNG (revaporised liquified natural gas). The deficit and high price could be mitigated somewhat by pooling indigenously produced gas with RLNG, by the state-owned Gas Authority of India Ltd (GAIL) and supplying to power plants at an average price rate.
During 2010-11,CIL could produce 431.32 million tonnes against a target of 460.5 million tonnes. Topping the endemic delays in environment and forest clearances, the Ministry of Environment and Forests (MoEF) had classified mines falling in forest zone into GO/NO-GO areas, not sustainable by law, and has since been scrapped. A case-to-case review has resulted in clearances of about 10,000 MW of capacity, but significant capacity is still stranded.
CIL has scaled down its production target for 2011-12 to 452 million tonnes from 480 million tonnes. The deficit in coal supply during 2011-12 is estimated to be 142 million tonnes increasing to 200 million tonnes by 2017. Domestic coal production is to be accelerated to keep pace with the demand of the power sector. It requires aggressive action to develop abandoned mines and open the coal mining sector for private investment for underground mining.
Bidding guidelines
Standard bidding documents for power projects do not make provisions to pass the increased fuel cost to buyers. As per the bidding guidelines, the levelised tariff comprises fixed and escalable components and only the latter is allowed to pass through to the extent indicated by the bidders.
Undoubtedly, it has been compounded by the irrational exuberance by the bidders to quote extremely aggressive tariff along with non-escalable fuel charges, thus exposing them to legal and commercial risks.
To address this issue, it may become necessary to consider a mechanism by which increase in fuel cost is also recovered additionally from the procurer of electricity.
Considering that adequate availability of fuel at a reasonable price is the pre-requisite to spur capacity addition in the power sector, establishment of Independent Coal Regulatory Authority and constitution of Appellate Tribunal for Coal must be expedited, besides completion of competitive bidding for allocation of captive coal block by December 2011. Also, Coal India needs to take the aggressive lead in acquiring overseas coal mine assets or entering into long-term contracts to import coal.
Imported coal is to be blended with domestic coal and sold to power generation consumers at average prices against the long-term contracts. CIL must take action to develop underground and abandoned mines to augment domestic coal production capacity.
A sensible balance between energy environmental security is to be maintained by constituting a Standing Inter-Ministerial Committee of MoP/MoC/MoEF to act as a single window for according clearances for power projects and associated mines.
Another area to concentrate on would be rationalisation of coal sources linkages to generation plants, to optimise coal transit time and costs of transportation, besides strengthening and expanding the transportation infrastructure of roads, Railways and ports.
(The author is a former CMD, Power Finance Corporation.)