Coal vs Gas Power Plant

8/3/2019 Coal vs Gas Power Plant

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COAL vs GAS BASED THERMAL POWER PLANT

India ranks second in global hard coal reserves and is amongst the largest

coal users worldwide. 70% of indigenous coal production goes on electricity

generation, coal accounting for 2/3 of fuel inputs to the Indian power sector.

Coal output has been rising at a steady rate of about 4% per year since

1990. The development of proven reserves has followed the growth in

extraction. The coal R/P ratio has declined only marginally and still exceeds

200 years, well above the world average. About 75% of coal comes from

open-cut mines. The factors that may adversely affect the security of coal

supplies in India are the following:

Most Indian coal is of poor quality because of the rather high content of

ash (30-50%) and water (4-7%) and consequently a low calorific value

(13-21 MJ/kg). When such coal is directly employed in powergeneration, the resulting electrical efficiencies are low. Alternatively,

coal can be pre-treated (washed), but this adds to the costs and results

in an 8-15% energy loss.

Although the gross R/P ratio is high, the amount of realistically

exploitable reserves is uncertain. At present, most Indian coal is mined

at depths of 150-300 metres. The deposits at such depths may be

sufficient for 50-60 years only. The recovery of deeper reserves may

be precluded by excessively high costs.

Most coalmines are state-owned, a fact that constrains private

investment in the sector. Investment in coal supply is particularly

impeded by distribution regulations and control over foreign

investment. The operation of coalmines is outdated and productivity is

very low compared to international standards, especially in

underground mining.

Most coal deposits are located in the northeast part of the country,

while the major consumption centres are in the west and southwest

(including coastal) areas of the country. Bringing coal to the majorconsumers, especially in unwashed form, involves expensive transport

by rail over large distances (500-750 km). Transport costs may account

for up to 70% of total delivery costs.

For a number of reasons, including the presence of three different

gauges, the condition of the Indian railways is far from perfect.

Improving the railways calls for huge investment, this does not seem


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realistic in the foreseeable future. For these reasons, and also to

improve average coal quality, many power plant operators in the west

and southwest parts of India are importing increasing volumes of

higher-quality steam coal.

The power generation sector is heavily regulated and electricity pricesare kept at very low levels that basically preclude investment. Power

plant operators have little incentive to invest in improving coal quality,

the development of logistical infrastructure or the modernization of

power plants. Most power plants are over-aged, outdated and

consequently inefficient. The current 10% share held by imports in

Indias total coal supply may increase in the future, driven by several

factors.

Electricity demand is set to expand along with the fast-growing

economy. Another aspect driving electricity demand is the lowelectrification rate especially in rural areas, where the grid connection

level is only 30%. Increasing the share of imports may be the preferred

option, not only because of the poor quality of indigenous production

but also because surface mining, which is suitable for the majority of

indigenous coal reserves, requires the relocation of population and

activities. Such relocation might pose challenges in view of the

countrys high population density.

On the other hand, imports may be impeded by the generally poor

state of port infrastructure and the resulting port congestion and

vessel delays, on top of the usual heavy delays during the monsoon

season. All in all, however, considering the size of the country, even a

modest increase in imports will most likely give very strong signals to

the regional and world coal markets.

It is true that historically coal has been cheaper than oil and gas on an

energy content basis. This may change, however, not only due to the higher

cost of coal application technologies compared with natural gas (coals main

rival on the electricity market), but also because the following factors behind

the lower price for coal may no longer be present in the future:

Lower attractiveness (for environmental reasons) of coal compared to

nuclear power and especially natural gas for electricity generation in

industrialized countries. Nonetheless, energy demand in developing

countries and emerging economies is rising faster than in industrialized

countries. By definition, low costs are of higher priority than a clean


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environment for less developed countries. The fact that the largest

energy consumers amongst these countries have bigger reserves of

coal than of oil and gas will give an additional impetus to coal demand

and prices.

Low concentration of supplies with a relatively large number of marketactors. However, the emergence of an OPEC-like cartel for coal seems

little probable in the foreseeable future. Its creation would also be

difficult because the coal industry is much smaller and has far less

economic power than the oil and gas industries.

The regional and country overview has revealed that coal recovery in

most countries will incur higher production costs in future. Since

international coal prices are still linked to production costs, an increase

in the global price levels of coal can be expected. On the other hand,

any enhancement of world coal reserves may be hampered by thepoor return on investment in coal mining over the past few decades.

The low profitability has been due to the strong price competition in

the world market and correspondingly low coal prices. Although the

investment needed to secure adequate reserves of coal by 2030 is

estimated to be only 3% of all necessary investment in the energy

sector by 2030 (compared, for instance, to 19% for gas), the lack of a

sufficient and stable cash flow may impede a timely commitment.

Consequently, the coal supply base may be further squeezed and the

pressure on coal prices reinforced by such pessimistic expectations. This phenomenon can be termed the psychological depletion of

proven reserves, which always comes before physical depletion.

Research and development (R&D) spending on coal mining has been

steadily declining over the past 20 years., the future world oil, gas and

coal markets will most likely become increasingly inter-related and the

energy market will tend to develop into a global market of

hydrocarbons.

Consequently, the relative gap between coal prices and oil and gas prices

will most likely narrow. This will be more pronounced for higher-quality coals,

and a wider differentiation in coal prices, depending on quality specifications,

may be expected.

The demand for energy can be drastically reduced if energy efficiency across

all sectors improves. Since electricity generation is the prime consumer of

coal, raising efficiency in this sector could shrink coal demand. However,


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efficiency improvements may be impeded or delayed, and the actual

reduction in coal demand may be smaller than initially expected, because of

the following reasons:

The volatile return on investment and poor profitability were indeed

the key reasons for the big oil companies to leave the coal business inthe late 1990s.

Efficiency can be increased either by upgrading existing power plants

or by replacing old electricity generation facilities with new facilities.

However, both options need significant additional investment that can

be recouped only over a relatively long period of time. Recent

estimates suggest that plenty of oil and gas could become available if

the long-term oil price stays above USD 30 per barrel. Such a level

does not appear high enough to boost large-scale investment in more

energy-efficient technologies, in particular for power generation.

Tougher environmental standards for the operation of power plants

require the installation of additional and expensive flue-gas cleaning

facilities. All these facilities consume energy.

Generation Capacity based on Feedstock

The generation capacity in India comprises of a mix of thermal, hydro,

nuclear, and renewable energy. Over the years thermal energy has become

a dominant source of power generation. As of Jan 2010, thermal energycontributed 64% (100,351.5 MW) of the countrys total power generating

capacity, while hydro energy contributed 24% (36,885.40 MW), renewable

energy sources around 9.8% (15,427.10 MW), and nuclear energy

contributed 3% (4,120 MW) to the total capacity.

Thermal fuel maintains a leading position among the fuel used for

power generation. In spite of efforts to reduce the countrys dependence

on thermal base generation, the cost (relatively higher for other sources of

generation) or the unavailability of other sources of energy have remained a

constraint. During the Tenth 5-year Plan, the planned capacity addition had agreater focus on the thermal generation space and the same trend has been

continuing during the Eleventh 5-year Plan. Most of the power generation

capacity will continue to be thermal as most upcoming projects are coal-

based.


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Hydropower is an environment-friendly alternative for thermal

power generation and the operating cost for running a hydro plant

is also very low; however, its share in generation has remained

constant and has not attracted much investment. The hydro-thermal

mix has maintained a leading position over the years, but the share of

hydropower plants in total generation has fallen over the years. In the mid-

eighties, the share of hydropower in total generation was comparable to that

of thermal generation, but, since then, investments in hydropower

generation have risen at a lower rate than investments in thermal

generation. Though the operating cost for hydropower plants is

lesser, the capital investment required in the initial stage is huge.

Investors have shied away from the sector because of delays in

environment clearances that have made the sector an unfavourable

choice and have restricted capacity addition in the sector. Thermal

energy, on the other hand, has gained a greater share over the 5-year planperiods and its growth rate has also been much higher, as investments from

public as well as private sectors have continued to pour in. In the Eleventh

Plan also capacity addition focuses more on thermal power

generation, which suggests that thermal energy will remain the

dominant source in the coming years.

Nuclear energy has had a very small share in the power generation pie, but

its share in total power generation was expected to rise post the Indo-US

Nuclear Civilian Agreement. India has only one nuclear power generation

company, NPCIL, with a capacity of 4,120 MW, but due to recentdevelopments many private and public sector utilities had envisaged plans

for setting up nuclear plants. NTPC, Tata Power, GMR, Reliance

Infrastructure, and GVK are some such companies. But the recent Japan

Nuclear incident,

The renewable sources of power generation include wind power, small hydro

power, biomass power, Urban & Industrial (U&I) waste to power, solar power

etc. Among these sources, wind power has a leading share of 70% in the

RES, while small hydro has 7%, cogeneration-bagasse 7%, biomass 5% and

solar & waste to energy constitute less than 1%.

In FY10, about 92% of the coal produced by CIL was non-coking coal which isprimarily consumed by the power sector. The remaining 8% is coking coalwhich is primarily consumed by the steel sector. In FY10, CIL supplied 80% ofits coal to the power sector.


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Indias annual coal demand to grow by 1.2bn tons by FY20: 120mn tons/yearof coal demand added every year; this is on power and steel capacityadditions considered conservative by many

Coal India to add only 30mn tons/year of new supply


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Captive mining and imports thus need to add ~800mn tons of supply in 10years; Captive mining can only add ~350mn tons

Thus India would need to import ~500mn tpa by FY20: there is not enoughport capacity or infrastructure to move coal from ports/mines to power plantswhich are located inland

There should be a meaningful policy response, but likely not in time

Hefty discount (62-63%) of CILs notified prices of coal to global coal

prices unsustainable; discount likely to narrow over the next decade

The pricing strategy of CIL until now has been limited to covering rise in production

costs which have not been offset by productivity and efficiency improvements. As a

result, hike in CIL's pricing has been lower than inflation rates and significantly

lower than global coal prices which have soared. CIL sells about ~83-84% of its coal

through long term agreements with its customers called Fuel Supply Agreements

(FSA) under the notified pricing system, out of which ~93% is at a significantdiscount to global coal prices. Through the construction of an index

comparing the change in price movement of global thermal coal contract

prices and CILs notified prices, taking FY05 as the base year, we estimate

that CILs notified pricesare at a ~62-63% discount to global thermal coal

contract prices (Refer Chart-9). While global thermal coal contract prices have

risen 2.25x from $40 per tonne in FY05 to ~130 per tonne in FY12E, CILs notified

prices have been increased only twice by a total 22.1% post the June 2004 price

increase.

Natural Gas - Current Pricing Mechanism in India

Limited availability of domestic coal and gas is constraining development of

Indian power sector, which is expected to see on average an annual capacity

addition of 12,000 MW over next five years.


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Even with easier equipment procurement and increasingly streamlined

approvals, Indian power sector development is being held back by limited

availability of domestically sourced coal and gas.

Shortage of coal is affecting the country's power sector, whose main source

of generation is thermal power plants. The shortage of coal is likely to reach137 MT this fiscal and 200 MT by FY17.

Growth is constrained by the ability of power purchasers to afford higher

power prices that will result from an increasing reliance on imported fuel,

which is much more expensive.

India is expected to add 45,000 MW of coal-fired generation capacity

between FY10 and FY15.

The Indian power generation capacity is expected to see a Compound Annual

Growth Rate of 6.5% over the next five years, or an average of 12,000 MWannually.

Of this, we expect coal-fired capacity to account about 67% of the total, wind

12% and gas 8%.

In the current five-year plan (2007-12), the Power Ministry is expected to see

a capacity addition of about 51,000 MW. The capacity addition in the first four

years of the 11th Plan ending March 31, 2012, stood at 34,462 MW.

The government is targeting a power capacity addition of 1,00,000 MW in the

12th five-year plan (2012-17).

Power plant investment would be constrained even if bureaucratic

impediments to power plant development continue to fall because we think

fuel availability, fuel costs and ability for off takers to absorb higher fuel

prices will remain as significant challenges.


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Pricing in the Power Sector

The majority of installed capacity in power is state-owned, and power isprovided at heavily subsidized prices to specific consumer segments.

Initial attempts at reform had mixed outcomes, and the lack of capacity

addition between the mid-1990s and mid-2000s has led to massive peak andoverall energy deficits.

On a PPP basis, Indian energy prices, particularly for industry, are some thehighest in the world (Report of the Expert Committee on Integrated EnergyPolicy, Planning Commission, 2006).

Much debate exists over the distortions created by this, and it has been onlyrecently, under the provisions of the Electricity Act 2003, and policydirectives that have followed, such as the National Tariff Policy and NationalGrid Plan, that extensive reforms have been initiated towards correctingthese distortions and creating competition.

Reform measures that relate to generation are directly relevant to gaspricing.

Power Sector Reforms


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The viability of gas in the power sector depends largely upon its costcompetitiveness compared to coal, which in turn is closely related to theprocess of power sector reforms.

About two-thirds of supply to gas-based power plants is at subsidized rates,through APM gas.

Third party access will facilitate the harnessing of electricity produced frommerchant and captive power plants, which have been projected as futuregrowth areas for gas demand.

According to the Electricity Act 2003, a generator has three options throughwhich to sell power; first, to distribution companies by winning bids basedon prices; second, by selling directly to a customer or to a distributionlicensee for short term sales using open access regulations; and third, to anelectricity trader.

Captive power plants can sell surplus electricity using the first two options.

Reforms also include the addition to generation capacity through Ultra MegaPower Plants (plants with an installed capacity greater than 4000 MW. Thereare currently 14 of these under construction or being planned (on a Build-Own-Operate basis) in nine states. An important aspect of these plants is fuellinkage.

From January 2011 onwards, under the National Tariff Policy, bidding willform the basis of power purchase by distributors, and public and privategenerators will have to compete.

Due to the fact that no gas allocation has been made from the D-6 fields tonew, Greenfield, power plants, bids have so far been made by distributorsonly for coal-based capacity.

Gas faces significant price competition from coal. As 90 per cent of coalproduction is subsidized, electricity produced from coal is cheaper than fromgas.

Also, as coal mines are completely state-owned, fuel linkages for domesticcoal are easily provided to both public and private generation companiesthrough government policy.

Domestic gas, however, lies increasingly in the private sector, and currentlythe only method of linkage to gas is through the gas utilization policy.

The above brings out the extent of distortions in pricing in the power sector;in order for there to be a level playing field, there would either have to beequivalent linkages provided for gas-based capacity, or, there would have tobe reforms in the coal sector.


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In the short term, the only conclusion that can be made is that it will bedifficult for gas to compete with coal for base load generation.

This highlights the issues which have to be faced in the coal sector; anyintegrated policy on energy will have to take into account the fact that mostfuel options will be unable to compete with coal at its current level of pricesand policy.

It can be argued that opportunities for the growth of gas-fired generation inthe energy sector exist due to the energy deficit, which is likely to persist inthe short term.

However, the underlying assumption here is that, under the present system,the demand for gas is based mainly on failures in the generation sector,which may not be inevitable, and the first-best here would be to reform thegeneration sector per se.

The viability of gas in power generation will therefore depend to a greatextent on its cost competitiveness compared with other fuels, especially coal.

Gas Price Differentiation in Indian Market (2010)

(Source: IEA, Indian Oil and Gas, Industry announcement and presentations)

The Competitiveness of Gas-Based Power

As gas-based power is likely to be more expensive than coal-based power, itwill be viable only in specific segments of the power market.

One such niche segment is the captive and merchant power sector.

Another segment is power that is traded across states, using tradingplatforms operated by power exchanges. There are two exchanges in India,in operation since 2007, and the total volume of electricity traded in 2007was roughly 3 per cent of total generation from utilities, although this is likelyto increase.


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Although most tradable power will be produced by merchant plants, the UltraMega Power Plants are also permitted to trade part of their generation. Thiscould help the price competitiveness of gas- based power, as the highergeneration costs could be passed on to the tradable component.

Merchant power plants that have surplus power can make profits by sellingthis surplus to meet peak demand, as power supplied under this category isnot under long term contracts.

It has been suggested that several merchant power plants are being set uppurely on the feasibility of a small share of their capacity being soldcommercially at high prices through the power exchanges.

Major Issues: Regulation/Policy and Pricing.

The issues regarding policy are probably the most important:

India needs a clear policy and regulatory framework in order to attract

the investments needed in the energy sector, not only to sustain a high

economic growth, but also to deal with poverty which leaves millions of

people without access to energy.

The role and powers of the regulators have to be clearly defined. India

has opened up to private and foreign companies and these want

regulatory stability with minimum intervention from the state.

The government has reduced the gap between very cheap APM gas

and more expensive other supplies. The dual system had indeed

proven its shortcomings, which were increasingly visible as APM gas

volume and share in total supplies diminished.

Keeping low energy prices was not only a disincentive for upstream

investment, resulting in losses for PSUs, but also discouraged

investments in energy efficiency on the demand side.

In the long term, additional LNG supplies are likely to be needed, but

would also be more expensive than the current price paid for Qatari

LNG.

If India wants to attract additional LNG in the long term, it will have to

increasingly compete in global gas markets at prices potentially higher

than the current ones; otherwise LNG supplies will be taken by other

Asian markets such as China.


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Pricing is also a key factor for the demand side due to some sectors

sensitivity to gas prices:

Gas-fired plants must compete with coal-fired plants which are usually

more competitive. However, in some cases gas-fired plants near

production sources or import terminals could be more competitive thancoal-fired plants, especially those using imported coal or domestic coal

shipped over long distances.

Gas use for fertilizer production depends on government policy

towards dependency on other countries and subsidies, as fertilizers

can be produced at a cheaper price in nearby Middle Eastern countries.

Pricing will determine the balancing point between supply and

demand. There have been some positive developments in the

upstream sector resulting in an increasing participation of JV andprivate companies and a certain number of discoveries including

Krishna Godavari KG-D6, but the NELP is also facing some

shortcomings mainly linked to policy and pricing issues.

India remains largely under-explored and major efforts have to be

made in this respect to develop additional domestic supplies.

Although India is also located near significant resources of gas in

Turkmenistan and Iran, pipeline interconnections remain a distant

prospect.

India has been turning to LNG instead and is building new

regasification terminals, which will increase the existing capacity by

half.

Future supplies in the coming five years will be therefore based on two

sources: domestic production and LNG supplies.

The current capacity of gas based plants is mainly for base-load

because there are shortages for electricity and also shortages of

domestic coal.

Gas has played an increasing role in power generation within utilities

and even more in the case of captive power plants.


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Power shortages have resulted in high prices for electricity and these

have helped the gas-based power plants which have improved PLF

even when gas prices have increased in the Indian market.

In the future,

Gas competes with coal for base-load capacity in scenarios where

domestic coal supply remains constrained.

Base-load gas power plants are competitive vis--vis coal plants when

relative difference between gas and coal prices is below US $ 4 per

MBtu.

At higher than $ 4 per MBtu price difference, gas is competitive only

for peak power supply.

The future price expectation for coal, in all scenarios, is around US $ 3

per MBtu. Thus, the market clearing gas price is around US $ 7 per

MBtu.

The rightward shift in coal supply curve in the High Growth, Coal

Reforms and Coal by Wire scenarios therefore makes coal more

competitive vis--vis gas in base load generation.

In the Coal by Wire scenario, the incremental transmission cost of

mine-mouth coal power plants makes gas power plants competitive at

demand centres located far from coal mines and nearer to gas supplypoints.

International gas pipelines help in making gas competitive with respect

to coal in northern gas markets which are far from coal deposits.

In the electricity sector coal and gas have emerged as two very

competitive choices which have given flexibility to power producers.

The flexibilities are a result of reform policies like coal sector reforms

and generation reforms.

This flexibility results in a high elasticity of substitution between the

two fuels.

In the high growth scenario as a result though the overall demand for

gas is higher the demand for gas from power sector is lower owing to

higher demand from other sectors.


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In the coal reforms scenario the flexibility allows power producers to

shift faster to coal when there is a right-ward shift of coal supply curve.

The future demand for gas in India from the electricity sector under

alternative scenarios for the period 2005-25

The electricity sector is among the key users of natural gas in India.

An assessment of demand from Electricity Sector transporting power to

demand centres is used by power producers to overcome the rail

infrastructure bottlenecks and substitute gas from base load power

generation.

The sustained electricity deficit and environment policies have added

to an already rising demand for gas.

Post 1994, the market reforms have led to increased gas supply fromdomestic production and imports.

The scenarios are differentiated by alternate economic growth

projections and policies related to coal reforms, infrastructure choices,

and local environment.

The results across scenarios show that gas competes with coal as a

base load option if price difference is below US $ 4 per MBtu.

At higher price difference gas penetrates only the peak power market.

Gas demand is lower in the high economic growth scenario since

electricity sector is more flexible in substitution of primary energy.

Gas demand reduces also in cases when coal supply curve shifts

rightwards such as under coal reforms and coal-by-wire scenarios.

Local environmental (SO2 Emissions) control promotes end of pipe

solutions (FGD) initially, though in the longer term mitigation happens

by fuel substitution (coal by gas) and introduction of clean coal

technologies (IGCC).


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Gas based Power plants: An economic blunder?

Power generation in India is heavily dependent on coal. However, recently,

gas based power generation is slowly picking up and it contributes to around

10%- 11% of the total power capacity. In a scenario where gas supplies are

officially falling short and imported gas prices continue to rise, will this shift

make sense?

Is the timing right?

As domestic gas has been officially announced to decline and international

gas prices remain high and volatile, financial viability of such gas based

power projects is called into question. Especially because the basic raw

material, natural gas, is highly in demand, in other sectors which can afford

it. The existing domestic fields can assure gas supplies only till 2016, unless

new discoveries are made. The imported gas is too volatile and costly at


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current levels. Besides, too much reliance on imported gas jeopardizes the

energy security of the nation.

Gas based versus conventional power plant

A natural gas based power plant has a shorter gestation period (less than 3years) and lower fixed costs as compared to conventional power plant (3- 4

years). However, a gas based power plant makes sense (16% of RoE) over a

coal based one if gas costs remain below or at US$7 per mmbtu. If the gas

prices rise above US$ 10-US$ 12, it leads to unviable economics for the

power sector. In last one year, the spot natural gas prices have risen by

50%. This has turned power generation companies averse to the use of spot

LNG. The power companies have stopped buying gas from companies like

GAIL and Petronet (PLL)

Logically speaking....

Using plain economics, any resource that is in short supply should be used in

the order so that the value addition is maximized. It will make more sense to

use imported gas supplies in the sectors where they can be afforded at

market prices like transport, cooking gas, refineries and gas retailers etc.

This is because no matter how high the price of imported gas is, it will still be

cheaper than oil (the substitute fuel for natural gas), 80% of which is

imported by India. These sectors will willingly shell out high gas prices (still

cheaper than other options like Petrol/diesel and LPG).

Again, competitive bidding for power projects has shown that base-load

power even from imported coal is mostly cheaper than gas-fired power at

current gas prices. Hence, using gas for power generation is economical

neither for power nor for other relevant sectors (where the marginal

economic utility of gas is higher).

Around 40% of the gas supplies serve Power sector. It will be much better to

use gas as a substitute for oil rather than coal. Its value addition for other

sectors like industrial fuel and for cooking and transport purposes is much

better. The reason is that country is more self sufficient in coal rather than inoil. Such a move will also strengthen energy security of the nation.

The fairness principle...

Unlike the base power plants which will be reluctant to pay more than

US$5.8 per mmbtu, the industry users like refineries and petrochemical


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plants would be willing to switch to gas up to fairly high gas prices (US$17-18

per mmbtu). Also, gas will be a much better (cheaper) substitute for diesel

and petrol and unsubsidized cooking fuels rather than coal (coal based

power plants).

Consequences

Any allocation of funds for such gas based power projects may turn out to be

bad investment and may kill or raise the costs of funding for other profitable

and viable projects. Long term security of the fuel through which power will

be generated is imperative. The companies need to understand the cost

bearing capacity implications which they are prepared to bear.

Recently, GAIL forayed into gas based power generation. This is a big boost

to companys position along the value chain and potentially a sound business

decision if domestic gas supplies increase in the near future. The companysRoE in the past few years has hovered above 19%. This compares to an

approximate 16% RoE of a gas based power plant at US$7 to US$ 8 per

mmbtu of gas costs (it is at this level that use of gas in a power plant makes

more sense than coal).

The parallel implications...

PLL had struck a contract with Australia for gas supplies for its upcoming

terminal at Kochi. Now, GAIL, the marketer of RLNG (regasified liquid natural

gas) is in a fix as there are no off takers for this gas and GAIL had enteredback to back agreement with PLL for this gas. The deal has turned out to be

ridiculously expensive as the delivered price turns out to be US$ 20 per

mmbtu versus a cost of US$ 15.6 per mmbtu for the imported gas from

Qatar. The single biggest consumer of this gas, NTPC (for its power plant at

Kayamkulam) is not for ready to pay such exorbitant prices at existing power

tariffs and has insisted for a price rollback. If GAIL enters power markets with

use of this gas, it will definitely strengthen the case for gas price pooling

which will make it easy to sell its expensive gas. This is because it will

narrow down the relative difference between price from other cheaper gas

sources and costlier imported gas.

However, the move will be negative for market determined pricing of natural

gas (a concept opposed to pooled gas prices). It should be noted that while

pooling/averaging out prices of domestic and imported gas may benefit

companies like GAIL and Petronet (they are finding no users for contracted


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imported gas supplies because of the high differentials in domestic and

imported gas supplies).

Conclusion

Coal-fired power offers advantages over gas-fired power if the natural gasprice is high and/or volatile, or in light of supply security issues. New coal-

fired power plants have higher efficiency and lower emission of CO2 per kWh

than existing plants. Emissions of airborne pollutants may be lower as well. A

disadvantage is the high investment cost (compared to gas-fired power) that

is compensated for by the lower fuel cost.. The current price in the global

emission trading system is not high enough to discourage the construction of

new coal-fired capacity.

In the near future, the utilities that have to comply with emissions trading

systems may consider implementing CO2 capture and storage technologies(CCS). This may significantly increase the investment cost and reduce the

efficiency of coal-fired power. Therefore, long-term emission reduction

policies and high CO2 prices are needed for CCS to become commercially

available. Coal-fired power not only competes with gas-fired power, but also

with nuclear and renewable power.

Coal vs Gas Power Plant

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