Gas has a long-term future in India as more than just a transition fuel, Deepesh Nanda, CEO of GE Gas Power South Asia, tells Petroleum Economist.
GE India has a long-running partnership with state-owned Bharat Petroleum Corporation, through which GE supplies technology to the Indian government and private sector. The partners have a high market share in India, with GE providing 275 of the country’s c.300-320 gas turbines. This total includes both those connected to the national grid and the significant captive generation sector, which is concentrated at refineries, fertiliser plants and petrochemicals facilities.
Gas accounts for only a small portion of India’s primary energy mix, but New Delhi has set a target of more than doubling the fuel’s contribution to 15pc by 2030 from 6.7pc currently. India also made a commitment at Cop26 to reach net-zero emissions by 2070. Replacing coal-fired capacity with gas cuts carbon emissions by 50pc, “so gas plants are the fastest way to decarbonise”, Nanda explains.
Nevertheless, India is still heavily dependent on its large coal-fired fleet—a situation that, for reasons of energy security and fuel prices, will persist for some time, Nanda says.
Battery storage technology is “not quite there yet” on a large scale, and power grids have not improved since the earliest days of electrical power in terms of managing intermittency, continues Nanda, so gas is essential to ensure stability and for balancing the grid—an issue that will become more significant as renewable generation expands.
Gas turbines have the advantage of rapid ramp-up rates to help balance the grid and have a greater operational flexibility. Gas plants have a minimum operating threshold of just 10pc compared with around 45pc for coal-fired units, explains Nanda.
The economics of gas
A significant portion of India’s gas-fired capacity is captive—linked only to specific industrial users—and is decoupled to a degree from the pricing impact of the LNG markets. But for grid-connected capacity, LNG prices are too high at present for gas-fired plants to be competitive in the merit order, although seasonal demand peaks—for instance over the summer—could still see them being used, says Nanda. The input cost of gas is an essential factor, and Indian generators needs prices to be around $7-10/mn Btu for gas plants be economical, he continues.
India is a regulated market, with both the federal Central Electricity Regulatory Commission (CERC) and state bodies placing clear limits on energy prices for consumers. This means fixed returns for investors and a tariff mechanism, Nanda explains. But the system is actually flexible, well-established and does not impose additional risk on investors, he argues.
Plant operators can seek tariff revisions, submitting their import costs as a regulatory filing, while the gas prices used as references are JKM-linked. The CERC regulator is “very responsive” and quick to revise end-user prices, says Nanda.
However, India’s exposure to the vagaries of the gas market is limited, since the country buys 70-80pc of its supply under long-term contracts, most of which are at a premium of around 12pc to Brent-linked prices, Nanda explains. That, in conjunction with long-term power-purchase agreements (PPAs), has helped shield India from the full impact of current high gas prices, although merchant plants reliant on spot LNG supplies are disadvantaged, Nanda admits. Conversely, 2020’s gas price slump disadvantaged buyers locked into long-term supply contracts.
Indian LNG importing is set for a material boost from new supply contracts starting from 2025, with additional volumes due to arrive from the US, Qatar and other sources.
Regulations and infrastructure
Outside investors can find India’s bureaucracy difficult to navigate. Non-captive power projects require four sets of key documents to be in place, Nanda explains. These comprise a PPA with either the state or central government, a fuel-supply agreement, a land-lease agreement and payment guarantees.
Projects lacking any of that paperwork “can become stranded”, Nanda admits. But India has become more open to investment and introduced legislation to ease that process in the last 5-7 years, he adds.
Access to infrastructure—be it pipelines or direct access to LNG import terminals—has also eased in recent years, with a “mega-scale” of building work creating “extensive onshore infrastructure”, Nanda says. The country now has a “robust and expanding” network comprising 17,016km of pipelines, with another 15,543km under construction. And there is 39.2mn t of LNG import capacity in place, with a further 17.3mn t under development, including the 5mn t Dhamra terminal in the east coast state of Odisha, which is nearing commissioning, adds Nanda.
Land ownership, access and usage are often highly contentious issues in India and have adversely affected various energy and infrastructure projects in the past. But gas plants are compact and “many times smaller than coal” plants, making them easier to site, especially near significant urban demand centres, where available land is even more scarce. Gas plants can occupy as little as just 35 acres and also place a much smaller strain on local water resources, using just 20pc of the water of a coal-fired facility, says Nanda.
India has a green hydrogen policy, but that does not necessarily render gas turbines obsolete, since the GE models can substitute hydrogen for gas to varying degrees up to 100pc. Hydrogen can become a source of stored power for the grid, as surplus output from renewables could be “put to good use with electrolysers”, Nanda suggests. Electrolyser and capex costs mean hydrogen production will be a fixed-cost process, in contrast to variable gas prices, he adds.