What role will gas-fired power plants play in meeting India’s growing peak power demand?

In this podcast we talk about the state of the economy business lines Rishi Ranjan Kala talks to Vikram V, Vice President and Co-Head, Corporate Sector Ratings, ICRA Limited, about the status and future prospects of gas-fired power plants in India. Vikram says that initially, gas-fired power plants in India were struggling with underutilization, with the load factor of power plants remaining at around 20-25 per cent for most of the last decade, mainly due to economic challenges and limited availability of domestic gas.

High generation costs due to the need to rely on imported LNG have made gas power economically unviable compared to the average cost of purchasing power for distribution companies (discoms). Recently, the Government of India issued directives under Section 11 of the Electricity Act to ensure that these power plants operate at optimal efficiency, which has resulted in utilization increasing to 21.4 percent in April 2024, a four-year high this month. The policy mandates that gas-fired power plants operate on a cost-plus basis, in which power rates are set biweekly by a government commission, temporarily improving their profitability.

Despite this, gas-fired power plants are mainly used to meet peak demand and balance the grid, especially given the growth in demand and the limited addition of new thermal capacity. More broadly, India’s energy landscape is evolving with a significant focus on renewable energy. By 2030, renewable energy is expected to make up about 40 percent of the country’s energy mix, up from 21 percent today, with solar power playing a major role. However, integrating renewable energy into the grid poses challenges, requiring reliable balancing sources. While the government plans to develop 60GW of energy storage capacity through battery and pumped storage projects to cope, progress has been slow. Pumped storage projects have long gestation periods, and India’s battery storage capacity is still in its early stages, relying heavily on imported batteries.

The future role of gas power plants depends on several factors: growth in demand, availability and prices of domestic gas, and the pace of development of renewable energy storage projects. If energy storage capacity does not increase as planned, gas-fired power plants will still be necessary to balance the grid. Additionally, government support through price-plus-cost policies will be critical to their economic viability. While gas-fired power plants currently benefit from political support and high short-term tariffs during peak periods, their long-term use will depend on how quickly and effectively India can expand its energy storage infrastructure to complement the growing share of renewables in its energy mix.

Listen to the podcast to learn more.

(Host: Rishi Ranjan Kala, Producer: Anjana PV)

Podcast About the state of the economy

India’s economy has been hailed as a bright spot in the general gloom that seems to blanket the rest of the world. However, a few sectors still stutter while others seem to be firing on all cylinders. To help you understand the tangle of contradictions that is this country, businessline offers podcasts with experts from finance and marketing to technology and startups.