New Delhi, Feb. 2: After deciding to hike the price of natural gas from April, the cabinet will consider a proposal to subsidise gas-based power plants to prevent electricity from becoming too costly.
The power ministry has circulated a draft note for the cabinet committee on economic affairs (CCEA) “for improving the viability of gas-based power generation”, which “seeks approval to allocate financial subsidy by the government to address the issue of substantial increase in the price of domestic natural gas”.
The note points out that the average cost of gas-fired electricity will go up to Rs 6-7 per unit from Rs 3.50-5, making electricity unaffordable for state electricity boards, which sell to consumers.
“The present base price level of gas is $4.2 per mmBtu (million metric British thermal unit) and is expected to rise to about $8 per mmBtu in April. This will result in the cost of power going up to about Rs 6-7 per unit, depending on the vintage of the plant, making these plants unviable,” it states.
The note says that several state electricity boards, including Andhra Pradesh and Tamil Nadu, have allowed power distributor companies (discoms) to buy electricity at a ceiling of Rs 5 a per unit. Therefore, it is necessary to subsidise gas-based power plants.
“It is therefore proposed to provide subsidy from the Government of India to enable state discoms to meet the difference between actual cost of power with increase in gas price.
The subsidy works out to about Rs 2,087 crore in 2014-15,” the note states.
The Centre is now faced with a dilemma. It cannot allow the price of electricity to rise to unaffordable levels even though it has decided to raise the price of gas. It can neither shut down gas-based power plants on the grounds that the electricity generated by them is too costly.
India has gas-based power plants with a combined capacity of 18,964 megawatts (MW), which run at 70-75 per cent capacity, accounting for 8.3 per cent of the electricity generated in the country.
Switching them off will mean 8 per cent less electricity in a country already facing a power problem.
It will also cause huge economic losses.
In the note to the CCEA, the power ministry has pointed out that it had “objected to the proposed increase of gas price” as it was felt that any further increase might not be justified as “investments were done much earlier and the costs have been recovered in most cases”.
It had said that the base price of domestic gas beyond $5 per mmBtu was unviable for power generation.