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Essar Power bets on coal to meet gas fall, plans to convert two gas plants into coal-based projects

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August 22, 2013 | economictimes.indiatimes.com Bookmark and Share  

August 20, 2013

Mumbai: Essar Power plans to convert two of its gas-based power plants in India into coal-based projects as the cost of keeping these plants idle amidst a crippling gas shortage rises. KVB Reddy, chief operating officer of Essar Power, told ET that the gas turbines would be shifted to Nigeria after conversion where they would fuel a 330 mw power plant.

India's gas output, primarily from Reliance Industries' D6 block in the Krishna-Godavari basin, has been declining since 2010, leaving over 20,000 mw of units underutilised or completely idle. Almost 7,000 mw of new capacity is ready for operations, but has no gas to fire the plants.

"Two of our combined cycle power plants are currently running at less than 25% of their capacity, which makes no economic sense. So we have decided to convert them to coal-based plants," Reddy said.

Essar's decision highlights the innovative solutions that companies are coming up with to meet the problems plaguing the sector. Companies are not investing in gas-based projects and even coal-based plants are finding it difficult to raise money and generate power. A combined cycle power plant runs its turbines by natural gas. Essar proposes to replace the gas turbines at the 515 mw Haziara and the 500 mw Bhander plants with equipment that can be fired by burning coal.

The entire process would take almost three years and upon conversion, the combined capacity of the two units would be reduced to 430 mw.
"The capacity would be reduced but we would be able to run the units at higher utilisation of 90% or more," Reddy said. After conversion, the gas turbines would be moved to the gas-rich Nigeria to run a 330 mw power unit in that country. A 330 mw unit from scratch in Nigeria is expected to cost about 1,000 crore.

Essar has a stated policy of India-centric growth and is not exploring power projects abroad like its peer Tata Power, Reddy said. The plan to set up a unit in Nigeria is aimed at utilising the equipment at the two units being converted, he added.

"For every day that a gas unit runs at sub-optimal level or is stranded, the developer is making losses as it has to pay interest on the loans taken for the project. Running these units on Regenerated Liquified Natural Gas is not a viable option as it makes power expensive which will have no takers," said Arvind Mahajan, Partner and National Head - Energy, Infrastructure & Government, KPMG India.

Typically, cost of power produced from coal is around 3.50- 4.00 for every unit, while power from imported gas is as expensive as 8 or more. "Converting a plant may take more investment but given the problem of gas availability, developers need to explore options," Mahajan said.

Coal availability has also been a bottleneck. Essar is designing the conversion project such that the units would run on low-grade imported coal that is abundantly available at economic rates. Essar Power has an installed capacity of 3,910 mw which it plans to increase to about 6,700 mw by 2016. It also has access to approximately 500 mt of coal resources across seven coal blocks in India and overseas.

In June, India approved higher gas prices by linking it to market rates in an attempt to boost exploration and output of gas. The government has frozen plans for new gas plants till 2015-16 because of gas shortages but companies with gas projects have been forced to keep their plants idle or run it at partial capacity.

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