ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Questionable Economics of LNG-based Power Generation

Need for Rigorous Analysis

In recent years, liquefied natural gas (LNG) has become the preferred option for power generation. This paper unravels the process of this shift away from coal-based power generation and makes an economic comparison of LNG-based generation with its competing options. As a sensitivity analysis based on cost variations of components revealed, in most cases, coal-based generation turned out to be a cheaper option. Though experts have spoken up for LNG's environmental friendly nature, questions still remain even as India's extensive coal reserves remain poorly exploited.

Though coal-based generation continues to be the mainstay of power generation in India, large-scale capacity addition based on oil and/or gas has been preferred in the last decade. Now this shift has been further consolidating on liquefied natural gas (LNG)-based capacity addition. The main reasons for this shift are said to be the favourable economics of LNG and the problems related to Indian coal supply and its quality. But little reliable information is available in the public domain about the cost of LNG-based generation, while many experts have expressed concern over the viability of LNGbased generation. Problems related to coal sited as excuses for the shift to LNG are not new and inaction on the part of authorities has been the primary reason for their continuation

In 1991, during the first phase of reforms and liberalisation in the power sector, Independent Power Producers (IPP) were invited to add generation capacity. This was also accompanied with a liberal attitude towards import of fuels. Till 1999, about 2,746 MW of imported oil/gas-based IPP plants had been commissioned and 3,343 MW plants at present are under construction. Compared to this, only 411 MW IPP plants based on coal have been commissioned and another 500 MW are under construction [MOP 1999b]. This change in fuel policy now seems to be consolidating with a focus on imported LNG-based power generation. A study by a high-level committee appointed by prime minister’s office (PMO) concluded tha LNG-based capacity addition of 23,000 to 30,000 MW by 2007 would be economical [PMO 1999]

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