New Delhi: On 11th May, The subsidy support to purchase expensive imported re-gassified liquefied natural gas (RLNG) can help light up 9,000-MW stranded power plants, potentially making such projects service interest obligations for 2 years, says rating agency CRISIL.
"CRISIL estimates that at prevailing gas prices, this can potentially enable 9,000 MW out of 14,300 MW of currently stranded gas-based power plants to operate at a plant load factor (PLF) of 25-30 percent, good enough to service their interest obligations for about two years," CRISIL said in a statement.
The e-auction for allocation of imported RLNG under the Ministry of Power's scheme for gas-based power plants is set to begin tomorrow.
The scheme makes available imported RLNG at a reduced price, and there will also be a tariff subsidy that will be determined through reverse auction. However, it requires companies to forgo their return on equity.
"The success of the scheme will hinge on the ability of power plants that are allocated to the imported RLNG to find buyers for their electricity.
That's because, as per the scheme, the net sale price of electricity to discoms has been fixed in the Rs 4.7 to Rs 5.5 per unit band, well above the current average prices in a market plagued by low demand.
It is also higher than the average Rs 3.5 to Rs 4.5 per unit that discoms paid last fiscal," the statement read.
The success will also depend on whether players can get a moratorium on principal payments from lenders for the next two years.
Consequently, companies with superior station-heat rates (or needing less fuel to generate one unit of electricity), low interest costs and ability to obtain favourable repayment terms from lenders are expected to be more competitive at the auction, it added.
The scheme targets 9,845 MW of plants that already received domestic gas but operated at sub-optimal levels last fiscal.
However, these plants are unlikely to show keen interest at the auction because the amount of gas allocated to them is limited, and they already enjoy a favourable availability-based tariff structure that facilitates cost recovery, it said.
The scheme provides for a per-unit tariff subsidy from the Power System Development Fund (PSDF). This will be disbursed based on a reverse auction mechanism to the stranded power plants first and then to those already receiving domestic gas.
Between June and September 2015, a PSDF support equivalent of Rs 844 crore has been allotted to this mechanism.
Furthermore, the delivered price of the e-bid RLNG is estimated to be around USD 3 per mmbtu, lower than spot RLNG prices, due to support from various stakeholders in the form of reduced marketing margins, re-gassification charges and transportation charges, apart from Customs and sales tax waivers.
This translates into Rs 870 crore of support from these stakeholders, in addition to the subsidy prop from PSDF.
Hence, apart from tie-ups for offtake, the success of the scheme will depend on contribution of all stakeholders in the RLNG supply chain as well as state governments.
To be sure, the e-auction will provide a breather, but CRISIL believes that long-term viability and credit quality of these power plants are ultimately tied to increased availability of domestic gas.
