Economics of Gas Based Power

Generation

May 2010
 Given the right price, Natural Gas can play a large role in Indias Power Supply
Basket

Fuel
Fuel Diversification
Diversification

Indias
Indias Power
Power Generation
Generationmix
mix is
is considerably
considerably gravitated
gravitatedtowards
towards coal
coal based
basedpower
power generation
generation


The
The current
currentcapacity
capacityaddition
additionunderway
underway accentuates
accentuates this
this dependence
dependence ononcoal
coalas
asaageneration
generationsource
source

Expected
ExpectedCoal
Coal Shortages
Shortages

CIL
CILpredicts
predictsaa substantial
substantial shortfall
shortfall in
inthe
the quantum
quantum of
of its
its coal
coal production
productionand
andcommitted
committedlinkages
linkages during
duringthis
this
decade
decade


The
The Production
Production from
from captive
captivecoal
coal blocks
blocks is
is slow
slow to
totake
take off
off

Smaller
Smaller Gestation
GestationPeriod
Periodleading
leadingto
toFaster
FasterCapacity
Capacity Additions
Additions

Greenfield
GreenfieldLNG
LNG Based
BasedPower
Power Plants
Plantscan
canbebe set
setup
upin
inaa period
periodof
of28-30
28-30months
months


Whereas,
Whereas, other conventional sources of have gestation periods rangingfrom
other conventional sources of have gestation periods ranging from 48
48 months-84
months-84 months
months

Peaking
PeakingAbility
Ability

Dedicated
DedicatedPlants
Plants operating
operatingin
inOpen
OpenCycle
Cyclein
inproximity
proximity to
toLoad
LoadCenters
Centerscan
canmeet
meetPeak
Peak Demand
Demand

Comparatively
Comparatively Clean
Cleanand
andLean
LeanSource
Source of
ofPower
Power

About
About50%
50% lesser
lesser emissions
emissions than
thanaacoal
coal based
basedstation
station


Land
Landand
and Water
Water Requirement
Requirementis is also
alsosubstantially
substantially lower
lower
2.
 Current Trends in Capital and Operating Costs
The Capital Cost for a Natural Gas based station in Combined Cycle are in the
range of INR 3.5 Crore/ MW

CERC has notified the Tariff Regulations for control period 2009-14:
The O&M expenses have been fixed as: INR 15.65 Lakh/ MW/ year escalated at 5.72% per
annum
Auxiliary Consumption for Combined Cycle stations has been stipulated as 3% of Energy
Generated and 1% for Open Cycle units

The Station Heat Rate for Advance class turbines range from 1700- 1800 Kcal/
KWh

LNG based Power Stations at Terminals can achieve better operational and
cost parameters due to Cold Energy Utilization

3.
 Fixed Cost of Gas based stations are considerably lower than coal based
stations

Fixed Cost/ KWh

1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
11

13

15

17

19

21

23

25

27

29

31

33

35
20

20

20

20

20

20

20

20

20

20

20

20

20
The Fixed Cost per unit ranges from ~85 paise to 120 paise/ unit and compares
quite favourably to coal based supercritical stations
The levellized fixed cost is ~99 paise per unit vis--vis a levellized fixed cost of nearly 150
paise/ unit for a coal based supercritical station

4.
 Long Term Tariffs benchmarked with Case-I Winning Bids

3.27 3.29
2.88 2.89 2.9
3 2.72
Rs./ kW h (Leveliz ed )

Case-I bids won in

2 the last 3 years are
in the range of Rs.
1 2.72/ kWh to Rs.
3.29/ kWh

0
FY 08 FY 08 FY 08 FY 08 FY 09 FY 09
Maharashtra Maharashtra Haryana Haryana Maharashtra Maharashtra

Lanco Emco Adani GMR Indiabulls Adani

For Natural Gas to be competitive in the Long Term Markets, a levellized Gas Price
of USD 7- USD 8 per MMBTU (Delivered) is sustainable for achieving a 16% RoE

The Developer shall also realize incremental revenues from CER benefits

5.
 Merchant Sale Economics
7.89
8
7.24
7 7.07
6.91
6.37
Rs. per unit

6
5.61
4.84 4.64 5.19
5
4.53 4.7
4.69
4
3.37
3
3

3
Q

Q
07

07

08

08

08

08

09

09

09

09

10

10

10
20

20

20

20

20

20

20

20

20

20

20

20

20
The Short Term tariffs have seen wide fluctuations in their yearly, seasonal and
intra-day patterns
Although a short term window exists for pure merchant operations, in the longer
term an appropriate mix shall have to be evolved by generators to hedge against
demand and price risks
The approx. delivered gas price at various merchant prices can be:
INR 4/ Unit: USD 9/ MMBTU
INR 4.5/ Unit: USD 11.5/ MMBTU
INR 5/ Unit: USD 12/ MMBTU
6.
 Sale to Industrial Consumers Tariffs based on 10% discount to projected HT
Tariffs
Cost Details Projected ARR of Gujarat

80000
Power Purchase Cost 70000
(Rs/Unit) 2.96 60000

Rs. Crores
50000
Escalation in per unit
40000
power purchase cost 3%
30000
Operations Cost (Rs 20000

per unit of 10000

Consumption) 0.46 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Financing Cost (Rs per Year

unit of Consumption) 0.11 Pow er Purchase Cost Operating Cost Financing Cost

Projected
Projected HT
HT tariffs
tariffs at
at 10%
10% discount
discount
Particular 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Industrial Tariff (Under
Open access) (Rs/kWh) 3.24 3.26 3.29 3.33 3.36 3.39 3.42 3.45 3.51 3.58
Tariff Under Group Captive
Scheme (Rs/kWh) 3.75 3.71 3.68 3.65 3.62 3.60 3.57 3.54 3.55 3.58

Note: Cross Subsidy surcharge is not applicable in case of a Group Captive Power Plant.
Accordingly realizations under the Group Captive Scheme are better

7.
 Sale to Industrial Consumers Netbacks

Gas (USD per MMBtu) Power Tariff (Rs. Per kWh)

10.00 3.80 3.82

3.80
9.90
3.78

9.80 3.76

3.74
9.70
3.70 9.95 3.72

9.60 3.70

3.68
9.50 9.61
3.66

9.40 3.64
Sale to Industrial Consumer Captive Sale

8.
 Comparison with other fuels

4.00
3.50 0.99
3.00 1.47 0.99
1.47 0.99
2.50
Rs/ KWh 2.00 1.47 3.70
1.50 2.37 2.71
1.00 1.90 1.98 2.03
0.50 1.00
0.00 0.00
Pithead Coal Imported Hydro Natural Natural Natural
Coal Station- Coal- Gas @ $6Gas @ $7Gas @ $8
Station 1000 KM Coast Per Per Per
from Mine MMBTU MMBTU MMBTU

Variable Charge Fixed Charge

Natural Gas compares favourably with competing fuels till a price of USD 7- USD 8
per MMBTU delivered
However long term pricing certainty shall be an imperative as the Indian Power
Markets are coal dominated

9.
 Given the right price, Natural Gas can play a large role in Indias Power Supply
Basket

Fuel
Fuel Diversification
Diversification

Indias
Indias Power
Power Generation
Generationmix
mix is
is considerably
considerably gravitated
gravitatedtowards
towards coal
coal based
basedpower
power generation
generation


The
The current
currentcapacity
capacityaddition
additionunderway
underway accentuates
accentuates this
this dependence
dependence ononcoal
coalas
asaageneration
generationsource
source

Expected
ExpectedCoal
Coal Shortages
Shortages

CIL
CILpredicts
predictsaa substantial
substantial shortfall
shortfall in
inthe
the quantum
quantum of
of its
its coal
coal production
productionand
andcommitted
committedlinkages
linkages during
duringthis
this
decade
decade


The
The Production
Production from
from captive
captivecoal
coal blocks
blocks is
is slow
slow to
totake
take off
off

Smaller
Smaller Gestation
GestationPeriod
Periodleading
leadingto
toFaster
FasterCapacity
Capacity Additions
Additions

Greenfield
GreenfieldLNG
LNG Based
BasedPower
Power Plants
Plantscan
canbebe set
setup
upin
inaa period
periodof
of28-30
28-30months
months


Whereas,
Whereas, other conventional sources of have gestation periods rangingfrom
other conventional sources of have gestation periods ranging from 48
48 months-84
months-84 months
months

Peaking
PeakingAbility
Ability

Dedicated
DedicatedPlants
Plants operating
operatingin
inOpen
OpenCycle
Cyclein
inproximity
proximity to
toLoad
LoadCenters
Centerscan
canmeet
meetPeak
Peak Demand
Demand

Comparatively
Comparatively Clean
Cleanand
andLean
LeanSource
Source of
ofPower
Power

About
About50%
50% lesser
lesser emissions
emissions than
thanaacoal
coal based
basedstation
station


Land
Landand
and Water
Water Requirement
Requirementis is also
alsosubstantially
substantially lower
lower
10.
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A Subsidiary of CRISIL Limited, a Standard & Poors company

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