1 The End User’s Perspective – Indian Power Sector

2 Gas for Power Sector- End User’s Perspective Gas use pattern Gas is a preferred fuel Reliability & adequacy of supply Major issues –Competitive price & commercial terms for affordable electricity tariff –Gas contracts to be in sync with evolving sectoral reforms in power –Technical issues Some emerging issues Summary

3 Gas Use Pattern

4 Present Capacity 61,157 MW 61% 11,017 MW 11% 2,720 MW 3% 25,116 MW 25% Plan Capacity Addition (2012) 32,673 MW 28% 9,380 MW 8% 20,408 MW 18% 53,333 MW 46% Indian Power Sector

5 Natural Gas -Preferred Fuel World over, natural gas is fast emerging as preferred fuel in power plants –It is efficient –It is clean –It offers low gestation period –It offers compact plant size India is no different. In fact, the demand for natural gas far out- strips the supply –Demand 160 to 190 MMCMD (2007) –Supply* 90 to 110 MMCMD (2007) * Includes 40 MMCMD of east coast gas Source: Study by Crisil

6 Power Plants Using Natural Gas- More efficient & Need low capital cost Coal BasedGas Based

7 Natural Gas is Environment Friendly Avoided emissions SO X NO X SPMCO 2 100% 61.5% 100% 69.5% + - Air Quality Improvement Through Avoided Emissions, vis-à-vis coal Based on Indian coal with 35% ash and calorific value of 3500 kcal/kg

8 Competitive Price Gas to coal competition Coal based power plants give bus bar tariff of less than Rs 2/kWh. Gas based power plants must therefore provide competitive tariff Fuel Component = Rs 1/kWh + Fixed Component =Rs 1/kWh = Bus bar tariff =Rs 2/kWh Gas Price < Rs 500/MKcal (eq. 3$/Mbtu) LNG prices will also need to be in sync with this requirement

9 Competitive Price Commercial Issues Merit order dispatch of electricity –Natural gas must compete with fuel price component of coal based plants + transmission/ wheeling charges where applicable Price stability –Rupee denominated –Fixed price, alternatively, basic price could be indexed to imported coal price (which is more stable vis-à-vis oil), since gas shall be competing with coal. Take or pay obligations –Merit order despatch and regulatory requirements do not support this

10 Flexibility Unlike coal based power plants, which are generally base loaded, loading on CCPP plants is cyclic. There could be hourly variations on its load and consequently on gas off take. CCPP plants thus need flexibility- both daily and seasonal, could be as high as -/+25%. Flexibility in contracts terms needed to make up for lower off take during the month/ year – either for self use or by third parties. Competitive Price Commercial Issues contd.

11 Taxation An uniform tax structure is needed States have different sales tax on gas, varying from 4% to 20% Higher sales tax on natural gas, ultimately results in higher tariff and consequential cascading effect on the economy of the State. It also creates unleveled field –Among gas based power plants in different States vying for same inter-state market –Among gas and coal based power plants since the coal supply is subject to concessional sales VAT, if applied, must be at the lowest slab Competitive Price Commercial Issues contd.

12 Gas Contracts Should be evolved such as to be in sync with sectoral reforms in power Regulatory issues –While small variations in a very tight price band may be tolerated, a frequent & wider variation would necessitate frequent tariff revision! Medium term contracts –To begin with 5 to 7 years. Any longer period difficult to commit due to regulatory issues & uncertainties related with sectoral reforms –As the market develops, one could also consider substantial shift to spot market –Preferential price for term contracts vis-à-vis spot market

13 Technical Issues Gas Specs –Calorific value - Agreed minimum (say 10,000 kcal/m 3 ), price adjustable for variation –Moisture free –Sweet gas i.e.H 2 S < 10 ppm (vol.) –Pressure – suitable for modern gas turbines i.e. around 30 bar Synergy with LNG regas to utilise cold –Complexity of operations, especially at part load operation –Possible only with new plants being set up along with LNG terminal –No liability for any inability to provide heat load Metering –Joint metering –High accuracy meters (mass flow/ turbine meters)

14 Gas for Power : Some Emerging Issues Economics (Pipeline Vs LNG)  Recent domestic gas finds  Energy security issues Kyoto protocol –Will it impact financial viability of using indigenous coal? Inter-relationship of gas and power sector –Impact of power sector reforms on Oil & Gas Sector deregulation and vice versa –Common regulator?

15 In Summary Indian Power Sector offers a huge potential for natural gas, but the sector –Is very price sensitive requiring competitive price to give bus bar tariff of Rs 2/kWh –Needs innovative medium term contracts, offering flexibility in sync with regulatory and sectoral reforms underway in power