Emission norms, cheaper gas may change fuel mix: study

The Indian power sector's preference for coal-based plants (more than half of India's capacity of 132,000 Mw is based on coal) may change as stricter norms for carbon emissions emerge, a report by the Tata Strategic Management Group has said.

"Coal is the preferred choice of fuel for India's power sector. But impending changes in the energy mix could change fuel preferences in the next decade," says Raju Bhinge, chief executive, TSMG.

The report says the supply of natural gas in sufficient volumes and at a price of around $3.5 per million metric British thermal unit may lead to a major swing in favour of gas.

"Gas becomes viable for brownfield projects at a price of less than $ 5 per mmbtu. For greenfield generation projects, natural gas becomes more competitive than non-pithead coal at $ 3.5 per mmBtu," says the report.

The price of gas in the country currently ranges between $1 and $11 per mmbtu, depending on whether it falls within the controlled pricing category or is bought off the spot market, though the plan is to move to a "market-determined pricing."

The Ratnagiri Gas and Power Private Ltd has agreed to supply power at Rs 3.10 per unit with Petronel LNG Limited supplying gas for $ 4.83 per mmBtu.

On the other hand, against a generation cost of Rs 2.72, power generated from coal is sold at Rs 4.97 per unit, says an expert.

The other factor that could loosen the dependence on coal could be solar power. So far, the high capital investment required has kept this form of energy away from mass use.

The TSMG report predicts that if the cost of carbon emission is factored in, the delivered cost of power from gas-based generation becomes preferable to non-pithead coal if emission cost exceeds $15 per tonne of carbon dioxide.

Tata Power, which recently bagged a contract to build a 4,000-Mw plant at Mundra in Gujarat based on imported coal, has no immediate plan to change its fuel-mix due to the uncertainty over the availability and pricing of gas.