For the foreseeable future, we won´t be able to do without electricity. And however much we talk about promoting renewables, for all the right reasons, we shall continue to need a substantial component of our energy to come from thermal power, due to various technical factors, not the least of which is grid stability through 24 hours, seven days a week, and 365 days a year.
Let´s move on to explore the fuel choices in thermal power. We have the fossil fuels, namely coal, oil and gas, and then nuclear fuel, in ascending order of preference in terms of CO2 emissions. The nuclear option has its own negativity in environmental parlance and safety concerns. Among the fossil fuels, oil emits 75 per cent of CO2 and gas emits 55 per cent of the CO2 that coal generates for the same amount of energy! So, gas is the obvious preferred source of our energy, given its evident carbon advantages.
Over the last two decades, India has gravitated towards gas-based power, in part also propelled by the discovery of natural gas in our west coast, construction of the HBJ Pipeline, and subsequent discovery of the heavily hyped Krishna-Godavari basin deposit. Over these fateful years, a number of gas-based power stations were set up, adding up to as much as 24,000 MW by 2012, which included capacities based on imported LNG, such as the infamous Enron Plant at Dabhol as well.
The total availability of natural gas in India rose from 36 to 61 billion cubic metres during 2005 to 2011, but hit 47 billion cubic metres in 2013/14. Use of gas for power generation grew at a CAGR of a paltry 1 per cent through 2005 to 2014, when overall power generation grew at a CAGR of 10 per cent. Why did this downward trend happen?
Gas-based power generation belied the fizz (read: hopes and expectations) it generated, because India depended on artificial market-making mechanisms and did not allow a free market based natural pricing of gas. The story of the Indian gas sector would have been altogether different, if we had let international market pricing coupled with requisite risk management strategies be the basis of planning of our gas-based power ventures. Currently, out of installed capacity of 24,000 MW, 14,000 MW have no fuel supply linkage, and naturally a number of units have been mothballed. ´Fully Stranded´ or ´Partially Stranded´ gas-based power stations would inevitably become ´Non Performing Assets´. Gas-based power will take a lot of time, and a lot of interventions, to come back to steam, literally speaking.
The fizz of gas is gone. India, in spite of being one of the largest economies of the world, produces only 1 per cent of global production of natural gas, and consumes only 1.5 per cent of global consumption of natural gas. So far, it has been the result of inadequate policy measures to promote investments in prospecting for and exploiting gas, coupled with faulty and unnatural pricing frameworks for this commodity. Maybe, the fizz will be back in the longer term, with the new bidding policy for gas prospects, which is in the works. Some transient improvements in Plant Load Factors of private gas-based power plants have also happened in the last 12 months, driven by artificial props like subsidies, incentives, auctions and price pooling, but these improvements are not likely to be sustained.