11

The End User’s The End User’s Perspective – Indian Power Perspective – Indian Power

SectorSector

22

Gas for Power Sector-Gas for Power Sector-End User’s PerspectiveEnd User’s Perspective

Gas use patternGas use pattern

Gas is a preferred fuelGas is a preferred fuel

Reliability & adequacy of supplyReliability & adequacy of supply

Major issuesMajor issues

– Competitive price & commercial terms for affordable electricity Competitive price & commercial terms for affordable electricity tarifftariff

– Gas contracts to be in sync with evolving sectoral reforms in powerGas contracts to be in sync with evolving sectoral reforms in power

– Technical issuesTechnical issues

Some emerging issuesSome emerging issues

Summary Summary

33

Gas Use PatternGas Use Pattern

Worldwide

26%

40%

5%

29%

Residential Power Feedstock Industries

India

35%

37%

6%

8%14%

Fertilizer Power Iron Internal Consumption Others

44

Present Capacity

61,157 MW61%

11,017 MW11%

2,720 MW3%

25,116 MW25%

P re se n t C a p a c ity, M W

6 1 1 5 7

6 1 %1 1 0 1 7

1 1 %

2 7 2 0

3 %

2 5 1 1 6

2 5 %

Thermal Gas/ Liquid Fuels Nuclear Hydro

Plan Capacity Addition (2012)

32,673 MW28%

9,380 MW8% 20,408 MW

18%

53,333 MW46%

Indian Power SectorIndian Power Sector

55

Natural Gas -Preferred FuelNatural Gas -Preferred Fuel

World over, natural gas is fast emerging as preferred fuel in World over, natural gas is fast emerging as preferred fuel in

power plantspower plants

–It is efficientIt is efficient

–It is cleanIt is clean

–It offers low gestation periodIt offers low gestation period

–It offers compact plant sizeIt offers compact plant size

India is no different. In fact, the demand for natural gas far out-India is no different. In fact, the demand for natural gas far out-

strips the supplystrips the supply

–Demand 160 to 190 MMCMD (2007)Demand 160 to 190 MMCMD (2007)

–Supply* 90 to 110 MMCMD (2007)Supply* 90 to 110 MMCMD (2007)

* Includes 40 MMCMD of east coast gas* Includes 40 MMCMD of east coast gasSource: Study by Crisil

66

Power Plants Using Natural Gas-Power Plants Using Natural Gas- More efficient & Need low capital cost More efficient & Need low capital cost

20%

30%

40%

50%

60%

70%

Conventional Super-critical CCPP (mid1990s)

CCPP (newgeneration)

CCPP (nextgeneration)

2

2.5

3

3.5

4

4.5

Efficiency Capital Cost

Rs

Cr/

MW

Effi

cie

ncy

Coal Based Gas Based

77

Natural Gas is Environment FriendlyNatural Gas is Environment Friendly

Avoided emissions

SOX NOX SPM CO2

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

88

Competitive PriceCompetitive PriceGas to coal competitionGas to coal competitionCoal based power plants give bus bar tariff of less than Coal based power plants give bus bar tariff of less than Rs 2/kWh. Gas based power plants must therefore Rs 2/kWh. Gas based power plants must therefore provide competitive tariff provide competitive tariff

Fuel Component = Fuel Component = Rs 1/kWhRs 1/kWh++

Fixed Component Fixed Component =Rs 1/kWh=Rs 1/kWh==

Bus bar tariff Bus bar tariff =Rs 2/kWh=Rs 2/kWh

Gas Price < Rs 500/MKcal (eq. 3$/Mbtu)

LNG prices will also need to be in sync with this requirement

99

Competitive PriceCompetitive PriceCommercial IssuesCommercial Issues

Merit order dispatch of electricityMerit order dispatch of electricity

– Natural gas must compete with fuel price component of coal based Natural gas must compete with fuel price component of coal based plants + transmission/ wheeling charges where applicableplants + transmission/ wheeling charges where applicable

Price stabilityPrice stability

– Rupee denominatedRupee denominated

– Fixed price, alternatively, basic price could be indexed to imported coal 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 price (which is more stable vis-à-vis oil), since gas shall be competing with coal.with coal.

Take or pay obligationsTake or pay obligations

– Merit order despatch and regulatory requirements do not support thisMerit order despatch and regulatory requirements do not support this

1010

FlexibilityFlexibility

Unlike coal based power plants, which are generally Unlike coal based power plants, which are generally base loaded, loading on CCPP plants is cyclic.base loaded, loading on CCPP plants is cyclic.

There could be hourly variations on its load and There could be hourly variations on its load and consequently on gas off take.consequently on gas off take.

CCPP plants thus need flexibility- both daily and CCPP plants thus need flexibility- both daily and seasonal, could be as high as -/+25%.seasonal, could be as high as -/+25%.

Flexibility in contracts terms needed to make up for lower Flexibility in contracts terms needed to make up for lower off take during the month/ year – either for self use or by off take during the month/ year – either for self use or by third parties.third parties.

Competitive PriceCompetitive PriceCommercial Issues Commercial Issues contd.contd.

1111

TaxationTaxationAn uniform tax structure is neededAn uniform tax structure is neededStates have different sales tax on gas, varying from 4% to States have different sales tax on gas, varying from 4% to 20%20%Higher sales tax on natural gas, ultimately results in higher Higher sales tax on natural gas, ultimately results in higher tariff and consequential cascading effect on the economy of tariff and consequential cascading effect on the economy of the State.the State.It also creates unleveled field It also creates unleveled field – Among gas based power plants in different States vying for same Among gas based power plants in different States vying for same

inter-state marketinter-state market– Among gas and coal based power plants since the coal supply is Among gas and coal based power plants since the coal supply is

subject to concessional sales tax @4%subject to concessional sales tax @4%

VAT, if applied, must be at the lowest slab VAT, if applied, must be at the lowest slab

Competitive PriceCompetitive PriceCommercial IssuesCommercial Issues contd.contd.

1212

Gas ContractsGas Contracts

Should be evolved such as to be in sync with Should be evolved such as to be in sync with sectoral reforms in powersectoral reforms in power

Regulatory issuesRegulatory issues

– While small variations in a very tight price band may be While small variations in a very tight price band may be tolerated, a frequent & wider variation would necessitate tolerated, a frequent & wider variation would necessitate frequent tariff revision!frequent tariff revision!

Medium term contractsMedium term contracts

– To begin with 5 to 7 years. Any longer period difficult to commit To begin with 5 to 7 years. Any longer period difficult to commit due to regulatory issues & uncertainties related with sectoral due to regulatory issues & uncertainties related with sectoral reforms reforms

– As the market develops, one could also consider substantial shift As the market develops, one could also consider substantial shift to spot marketto spot market

– Preferential price for term contracts vis-à-vis spot marketPreferential price for term contracts vis-à-vis spot market

1313

Technical IssuesTechnical Issues

Gas SpecsGas Specs– Calorific value - Agreed minimum (say 10,000 kcal/mCalorific value - Agreed minimum (say 10,000 kcal/m33), price ), price

adjustable for variationadjustable for variation– Moisture freeMoisture free– Sweet gas i.e.HSweet gas i.e.H22S < 10 ppm (vol.)S < 10 ppm (vol.)– Pressure – suitable for modern gas turbines i.e. around 30 barPressure – suitable for modern gas turbines i.e. around 30 bar

Synergy with LNG regas to utilise coldSynergy with LNG regas to utilise cold– Complexity of operations, especially at part load operationComplexity of operations, especially at part load operation– Possible only with new plants being set up along with LNG Possible only with new plants being set up along with LNG

terminalterminal– No liability for any inability to provide heat load No liability for any inability to provide heat load

MeteringMetering– Joint meteringJoint metering– High accuracy meters (mass flow/ turbine meters)High accuracy meters (mass flow/ turbine meters)

1414

Gas for Power : Some Emerging IssuesGas 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?

1515

In SummaryIn Summary

Indian Power Sector offers a huge potential Indian Power Sector offers a huge potential for natural gas, but the sectorfor natural gas, but the sector

– Is very price sensitive requiring competitive Is very price sensitive requiring competitive price to give bus bar tariff of Rs 2/kWhprice to give bus bar tariff of Rs 2/kWh

– Needs innovative medium term contracts, Needs innovative medium term contracts, offering flexibility in sync with regulatory and offering flexibility in sync with regulatory and sectoral reforms underway in powersectoral reforms underway in power