State of the Economy. What role will gas-based power plants play in meeting India’s growing peak energy demand?

In this State of the Economy podcast, businessline’s Rishi Ranjan Kala, speaks to Vikram V, Vice President & Co-Group Head, Corporate Sector ratings, ICRA Limited, on the status and future prospects of gas-based power plants in India. Vikram says that Initially, gas-based power plants in India have faced underutilisation, with their plant load factor remaining around 20 to 25 per cent for most of the past decade, largely due to economic challenges and limited domestic gas availability. 

The high cost of generation, driven by the need to rely on imported LNG, made gas power economically unviable compared to the average purchase cost of power for distribution companies (discoms). Recently, the Indian government issued directives under Section 11 of the Electricity Act to ensure these plants operate at optimal capacity, which has resulted in an increase in utilisation to 21.4 per cent in April 2024, a four-year high for that month. This policy mandates gas plants to run based on a cost-plus mechanism where energy charges are determined bi-weekly by a government committee, improving their viability temporarily. 

Despite this, gas-based power plants are primarily being used to meet peak demand and for grid balancing, particularly given the rise in demand and the limited addition of new thermal power capacity. In the broader context, India’s energy landscape is evolving with a significant push towards renewable energy. By 2030, renewables are expected to account for around 40 per cent of the country’s energy mix, up from the current 21 per cent, with solar power playing a major role. However, the integration of renewables into the grid poses challenges, necessitating reliable balancing sources. While the government plans to develop 60 GW of energy storage capacity through battery and pumped storage projects to manage this, progress has been slow. Pumped storage projects have long gestation periods, and India’s battery storage capacity is still in its nascent stage, relying heavily on imported batteries. 

The future role of gas-based power plants hinges on several factors: demand growth, the availability and pricing of domestic gas, and the development pace of renewable energy storage projects. If energy storage capacities do not grow as planned, gas plants will continue to be essential for grid balancing. Additionally, government support through policies ensuring cost-plus pricing will be crucial to their economic viability. While gas plants are currently benefiting from policy support and high short-term tariffs during peak periods, their long-term utilisation will depend on how quickly and effectively India can ramp up its energy storage infrastructure to complement the increasing share of renewables in the energy mix. 

Listen to the podcast to know more. 

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

About the State of the Economy podcast

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups.