The Union government’s incentives to revive gas-based power plants in the country are showing results. The plant load factor (PLF), or utilization levels of such plants has improved from 18% in January to 25% in September and 23% in October.
Utilization levels rose despite the monitored capacities seeing an addition of 1,501 megawatts (MW). Compared with the previous fiscal year, the average monthly power generation at gas-based plants is higher by about one-fifth in September and October.
The government scheme to provide subsidy to restart the stalled projects has helped improve generation and utilization. “(Generation) improved significantly driven by recent initiatives of the government to supply gas at subsidised rates to stranded plants," ICICI Securities Ltd said in a note.
Private companies saw notable benefits from the scheme. From a little over 9%, the utilization levels of the private sector plants on an average improved to about 19% this year. Utilization levels of the government-owned plants remained around 25%.
During the year, several firms restarted their gas-based plants. GMR Infrastructure Ltd recently commissioned a 768MW plant under the scheme. Revival of the stranded plants can help the companies meet debt covenants and other expenses, which should bring some reprieve to the companies.
But the path to full recovery is a long-drawn process.
First, the government scheme is a short-term arrangement. Incentives are given for limited periods and companies have to rebid to receive fresh aid. Second, companies can earn optimal returns only when their plants operate at more than 70% PLF. Barring a few, the vast majority of gas-based plants are operating at less than 50% PLF currently.
The utilization levels can rise only when the companies get ample supplies of cheaper gas, be it imported or domestic. While that depends on several factors like the rise in domestic gas production, for now, the government scheme is providing a reprieve.
Mark to Market writers do not have positions in the companies they have discussed here.