Energy News Monitor

Energy: Power Ministry plans to shut coal-fired power plants with capacity of about 8000 MW.

Power News Commentary: August-September 2016

India

Reportedly, the Power Ministry is planning to shut coal-fired power plants with capacity of about 8000 MW that are more than 25 years old to reduce carbon emissions. It is definitely the right time to close inefficient plants as demand for power is subdued. Closure of old plans may also have the additional benefit of reducing land acquisition problems for new plants. New plants can be constructed at the site of closed plants without going through the complex procedure for acquiring land in new sites.  But closing old plants will not address the problem of inefficiency in the Indian power sector. The share of power capacity slated for closure is less than 4 percent of India’s coal based power generation capacity and 12 percent of state owned power generation capacity which has the oldest fleet.  Globally over half of thermal power generation capacity is less than 20 years old but in India the share is two thirds. The relative youth of India’s power generation fleet means that relatively few of these plants will reach the end of their technical life time in the next two decades.

The other news that mattered in the last one month is that claims of rural electrification are at best inaccurate and at worst false. Rural electrification plans, irrespective of whether they are called Deen Dayal Upadhyay Gram Jyoti Yojana or Rajiv Gandhi Grameen Vidyutikaran Yojana are a victim of India’s (a) devolved federalism that distributes responsibility over electricity between the State and the Central governments and (b) the conflict between forces of the market and intentions of the Government. Well intended plans of the Centre to electrify villages or poor households often end with putting up the infrastructure such as poles and wires etc or financing such infrastructure. The ownership of the infrastructure and the responsibility to supply of electricity then moves to the State governments. State governments tend to be reluctant to maintain the infrastructure in rural areas or supply electricity but they cannot be blamed. The right hand of the Central government asks State governments to electrify rural and poor households but the left hand of the same Central government (that is under the influence of the invisible hand of the market) asks State governments to submit to the power of the market. The UDAY scheme of the Centre is a good illustration as it is essentially asking State governments to shy away from subsidies and respond to market forces.

One move that can address this problem was also reported.  The REC was reportedly working on a scheme to provide long-term loans to States that agree to offer free new electricity connections. The scheme covers funding of expenses like laying of lines to give access to electricity, installation of meters and other accessories. As per the plan, the distribution companies will have to get new connection plans approved by REC, which will reimburse expenses incurred by power utilities in giving electricity access to households.  This is not a great idea as it will only increase the role of the bureaucracy in providing access to electricity.  The bureaucracy is known for inefficiency and leakages. Instead the Central government should distribute pre-paid smart cards to households with which they can draw say 50-100 units of electricity per month at no cost to the household.  Additional consumption could be charged.  This scheme of pre-paid smart cards for electricity access have been successfully implemented in countries like South Africa.  Not only has this increased access to electricity but also simulated demand for more electricity. Households in South Africa that consumed 50 free units of electricity got used to the comforts it provided and started paying for additional units of electricity.

The procurement price of LED bulbs has reportedly fallen to ` 38 from ` 54.90 per unit under the government’s DELP and it is expected to reduce the final retail price by ` 15. LED bulbs are being distributed at a subsidised price between ` 75-100 per unit by various power distribution utilities across the country depending on the state levies. So far over 152 million bulbs have been distributed. This is expected to avoid 4,000 MW peak demand of electricity and reduce 43,941 tonnes of carbon dioxide per day. If 770 million LED bulbs are distributed as planned it is expected to result in savings of 20 GW avoid carbon emissions of 80 MT every year. This is probably one of the more viable schemes for reducing carbon emissions.

Rest of the World

According to the report by ‘coalswarm’, an anti-coal group, summarised by Reuters, the amount of coal-fired power generation under development worldwide had shrunk by 14 percent to an estimated 932 GW from 1,090 GW at the start of the year driven down by efforts of China to reduce overcapacity. India’s policies to reduce coal-fired plants, partly due to under-utilization of existing plants are also cited among reasons. Overall, the amount of coal-fired generating capacity in pre-construction planning fell 14 percent. The decline, of 158 GW was almost equal to the coal generating capacity of the EU at 162 GW, it said. China accounted for the largest share with a reduction of 114 GW of coal based power generation capacity, followed by India with a decline of 40 GW. From 2003 to 2015, USA added 23 GW of coal capacity and retired 54 GW.

The news of closure of coal based power plants in China was complemented with the news that China may be investing too much in coal power as reported by Bloomberg quoting the IEA. According to the IEA, China started more than 70 GW of new coal projects last year and had 200 GW under construction at the end of April even though many plants were idle more than half the time. According to Greenpeace China supposedly will ‘waste’ $150 billion on excess power capacity by 2020. It appears that one man’s investment is another man’s waste!

NATIONAL: OIL

Oil PSUs spend third of annual capex in 5 months

September 27: State oil firms have spent about a third of their annual planned capex in the first five months of 2016-17 with the upstream firms spending at a faster clip than refiners. Between April and August, state oil firms spent ₹31,000 crore against the full year target of ₹88,000 crore. Explorers Oil and Natural Gas Corp (ONGC), ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) together spent 43% of the planned ₹48,000 crore. OVL has used up nearly two-thirds of its ₹14,800 crore target, the fastest among any state oil firms. ONGC has finished just a third of the capital outlay for the year. In the last fiscal year, ONGC had missed its capex target by a fifth while its overseas arm had slipped by about a third. OIL has spent about ` 1,400 crore in five months, against an annual target of ₹4,020 crore. ONGC and OIL are under pressure from the government to boost production so that India’s rising dependence on crude oil imports can be cut.

Source: The Economic Times

India’s petrol consumption to grow 6 percent next fiscal: Moody’s

September 26: India’s petroleum consumption will grow at 6 percent in 2017-18, double the rate at which fuel demand in China is projected to grow, Moody’s Investors Service said. The US Energy Information Administration (EIA) projects total liquid fuels consumption in the Asia Pacific to rise by 0.9 million barrels per day (bpd) in 2017 to 33.3 million bpd. China and India remain the fastest-growing product markets in Asia, collectively accounting for 80 percent of total demand growth in the region. Moody’s said Asian refiners have started to dial back their capacity additions and this trend is expected to continue in 2017-18, although the immediate impact on an oversupplied market will be somewhat limited. Moody’s said slow but steady demand growth from China and India underpins its stable outlook for the Asian refining and marketing (R&M) industry, despite a likely modest earnings contraction through 2017.

Source: The New Indian Express

Cairn to spend $150 mn on 10 exploratory wells in AP

September 26: Cairn India will be taking up exploratory and appraisal drilling of ten wells in Palar block at the coast in Nellore district Andhra Pradesh with an investment outlay of $150 million. An Expert Appraisal Committee (EAC) under the Ministry of Environment, Forests and Climate Change examined and gave its nod to the proposal under Coastal Regulatory Zone (CRZ) perspective for drilling to Cairn India. The project was granted environmental clearance in 2011. The PR-OSN-2004/1 block has been awarded by the government during NELP-VI licensing round in 2007 for hydrocarbon exploration. Exploration activities will be carried out as per the Production Sharing Contract (PSC) signed between CIL and the Centre, the minutes of the meeting of EAC held said.

Source: The Economic Times

BPCL may look at increasing Kochi refinery capacity to 22 MT

September 25: Bharat Petroleum Corp Ltd (BPCL), which expects to finish work on its 15.5 million tonnes (MT) refinery expansion in Kochi by December and commission it in the fourth quarter, may look at further increasing its capacity to 22 MT. The third largest state-run oil marketer BPCL, with 23 percent market share, currently has four refineries — in Mumbai, Kochi, Bina in Madhya Pradesh in joint venture with Oman Oil Company and Numaligarh in Assam.

Source: Business Standard

PM Modi hails fellow Indians for giving up LPG subsidy

September 25: Prime Minister (PM) Narendra Modi hailed the people for supporting his call to give up their LPG Subsidy under the ‘Give-it-Up’ campaign to provide help to the needy. PM Modi in the 24th edition of his ‘Mann ki Baat’ programme congratulated people for giving up the LPG subsidies for the nation’s welfare. The Prime Minister had in his previous address highlighted an emotional letter written by an 84-year-old retired teacher, who gave up her subsidy.

Source: Business Standard

OIL investing ₹12 billion to revamp pipeline pumping stations

September 24: Oil India Ltd (OIL) said it is investing ₹1200 crore to revamp the pumping stations of its trunk pipeline. OIL operates a total network of 1,220 km long crude oil pipelines, with a capacity to carry 5.38 million metric tonnes per annum (MMTPA) crude. These pipelines transport crude oil produced from oilfields in Upper Assam to the public sector refineries at Numaligarh, Guwahati and Bongaigaon in the state. OIL Chairman and Managing Director Utpal Bora said at the Annual General Body Meeting that the company achieved highest ever production and sale of natural gas in its history during 2015-16 fiscal. Bora informed the shareholders that crude oil production was 3.247 million metric tonnes (MMT) as compared to 3.440 MMT during 2014-15. The turnover of the company stood at ₹9764.87 crore as against ₹9748.23 crore, while the Profit after Tax (PAT) was ₹2330.11 crore against ₹2510.20 crore during 2014- 15, Bora said. Bora said the contribution to the state exchequer during the year was ₹1861 crore and that to the Central government was ₹3245 crore.

Source: The Financial Express

India to hold global energy ministerial meet in 2018

September 21: India has accepted Saudi Arabia’s request to host a ministerial session of the International Energy Forum (IEF), a group of 72 oil producing and consuming nations based in Riyadh, in 2018. Saudi minister of energy, industry and natural resources Khalid A. Al-Falih proposed holding the ministerial meeting in India in a telephone call he made to Oil Minister Dharmendra Pradhan, the oil ministry said. Pradhan invited the Saudi energy minister Khalid A. Al-Falih for discussing energy cooperation between the two nations and urged Saudi oil companies to invest in the Indian oil and gas sector, the oil ministry said.

Source: Livemint

NATIONAL: GAS

RIL, ONGC face 18 percent cut in natural gas price

September 27: India will probably cut the price of natural gas by about 18 percent in a setback for explorers, a survey shows. The government-set price will track a global decline and fall to less than $2.5 per million British thermal units for October through March from $3.06 currently, according to the average of 12 industry estimates. India reviews the rate half-yearly, using a formula capturing international trends.  Such a reduction would take the price to less than half the $5.05 per million British thermal units the government set when it first rolled out the formula in 2014. That could put pressure on the margins of explorers such as Oil & Natural Gas Corp (ONGC) and Reliance Industries Ltd (RIL), while benefiting users including fertilizer companies and power generators. India has struggled to follow the U.S. and Europe in giving natural gas a greater role for electricity production in place of polluting coal power. Lower prices threaten to hamper the investment needed to turn around flagging output of the fuel in Asia’s No. 3 economy. A higher tariff of about $6.6 per million British thermal units is available for gas recovered from some deep-sea fields, under a policy change from March that prompted companies to revive plans to tap difficult deposits. That price is also due to be revised from October 1. ONGC estimates that each dollar decrease in gas prices curtails annual revenue by ₹42 billion ($630 million) and profit by ₹24 billion. ONGC said the government may step in if parts of the exploration industry become unviable because the natural gas price falls too far. The current gas-price formula is based on U.S., Canadian, U.K. and Russian rates. The trade association said the government needs to reassess the formula as it’s based on prices from countries where there is an oversupply of gas, unlike in India.

Source: Bloomberg