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Economics of Gas Based PowerGeneration

May 2010

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2.

Given the right price, Natural Gas can play a large role in Indias Power SupplyBasket

Fuel Diversification

Fuel Diversification

Indias Power Generation mix is considerably gravitated towards coal based power generation

The current capacity addition underway accentuates this dependence on coal as a generation source

Indias Power Generation mix is considerably gravitated towards coal based power generation

The current capacity addition underway accentuates this dependence on coal as a generation source

Expected Coal Shortages

Expected Coal Shortages

CIL predicts a substantial shortfall in the quantum of its coal production and committed linkages during this

decade

The Production from captive coal blocks is slow to take off

CIL predicts a substantial shortfall in the quantum of its coal production and committed linkages during this

decade

The Production from captive coal blocks is slow to take off

Smaller Gestation Period leading to Faster Capacity Additions

Smaller Gestation Period leading to Faster Capacity Additions

Greenfield LNG Based Power Plants can be set up in a period of 28-30 months

Whereas, other conventional sources of have gestation periods ranging from 48 months-84 months

Greenfield LNG Based Power Plants can be set up in a period of 28-30 months

Whereas, other conventional sources of have gestation periods ranging from 48 months-84 months

Peaking Ability

Peaking Ability

Dedicated Plants operating in Open Cycle in proximity to Load Centers can meet Peak Demand

Dedicated Plants operating in Open Cycle in proximity to Load Centers can meet Peak Demand

Comparatively Clean and Lean Source of Power

Comparatively Clean and Lean Source of Power

About 50% lesser emissions than a coal based station

Land and Water Requirement is also substantially lower

About 50% lesser emissions than a coal based station

Land and Water Requirement is also substantially lower

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3.

Current Trends in Capital and Operating Costs

The Capital Cost for a Natural Gas based station in Combined Cycle are in therange of INR 3.5 Crore/ MW

CERC has notified the Tariff Regulations for control period 2009-14:

The O&M expenses have been fixed as: INR 15.65 Lakh/ MW/ year escalated at 5.72% perannum

Auxiliary Consumption for Combined Cycle stations has been stipulated as 3% of Energy

Generated and 1% for Open Cycle units

The Station Heat Rate for Advance class turbines range from 1700- 1800 Kcal/

KWh

LNG based Power Stations at Terminals can achieve better operational andcost parameters due to Cold Energy Utilization

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4.

Fixed Cost of Gas based stations are considerably lower than coal basedstations

The Fixed Cost per unit ranges from ~85 paise to 120 paise/ unit and compares

quite favourably to coal based supercritical stations

The levellized fixed cost is ~99 paise per unit vis--vis a levellized fixed cost of nearly 150paise/ unit for a coal based supercritical station

Fixed Cost/ KWh

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

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5.

Long Term Tariffs benchmarked with Case-I Winning Bids

2.722.88 2.89 2.9

3.27 3.29

0

1

2

3

4

Maharashtra Maharashtra Haryana Haryana Maharashtra Maharashtra

Lanco Emco Adani GMR Indiabulls Adani

Rs./

kWh(Levelized)

For Natural Gas to be competitive in the Long Term Markets, a levellized Gas Priceof USD 7- USD 8 per MMBTU (Delivered) is sustainable for achieving a 16% RoE

The Developer shall also realize incremental revenues from CER benefits

Case-I bids won inthe last 3 years arein the range of Rs.2.72/ kWh to Rs.3.29/ kWh

FY 08 FY 08 FY 08 FY 08 FY 09 FY 09

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6.

Merchant Sale Economics

The Short Term tariffs have seen wide fluctuations in their yearly, seasonal and

intra-day patterns

Although a short term window exists for pure merchant operations, in the longer

term an appropriate mix shall have to be evolved by generators to hedge against

demand and price risks

The approx. delivered gas price at various merchant prices can be:

INR 4/ Unit: USD 9/ MMBTU

INR 4.5/ Unit: USD 11.5/ MMBTU

INR 5/ Unit: USD 12/ MMBTU

3.37

4.53

5.61

7.07

6.37

4.7

5.19

7.89

6.91

7.24

4.64

4.69

4.84

3

4

5

6

7

8

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

Rs.perunit

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7.

0.11Financing Cost (Rs perunit of Consumption)

0.46

Operations Cost (Rsper unit ofConsumption)

3%

Escalation in per unit

power purchase cost

2.96Power Purchase Cost(Rs/Unit)

Cost Details Projected ARR of Gujarat

0

10000

20000

30000

40000

50000

60000

70000

80000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year

Rs.

Crores

Power Purchase Cost Operating Cost Financing Cost

3.583.553.543.573.603.623.653.683.713.75Tariff Under Group CaptiveScheme (Rs/kWh)

3.583.513.453.423.393.363.333.293.263.24

Industrial Tariff (Under

Open access) (Rs/kWh)

2019201820172016201520142013201220112010Particular

Projected HT tariffs at 10% discountProjected HT tariffs at 10% discount

Note: Cross Subsidy surcharge is not applicable in case of a Group Captive Power Plant.Accordingly realizations under the Group Captive Scheme are better

Sale to Industrial Consumers Tariffs based on 10% discount to projected HTTariffs

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8.

Sale to Industrial Consumers Netbacks

9.61

9.953.70

3.80

9.40

9.50

9.60

9.70

9.80

9.90

10.00

Sale to Industrial Consumer Captive Sale

3.64

3.66

3.68

3.70

3.72

3.74

3.76

3.78

3.80

3.82

Gas (USD per MMBtu) Power Tariff (Rs. Per kWh)

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9.

Comparison with other fuels

1.00

1.47

1.90

1.47

1.98

1.47

0.00

3.70

2.03

0.99

2.37

0.99

2.71

0.99

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.504.00

Rs/ KWh

Pithead

Coal

Station

Coal

Station-

1000 KM

from Mine

Imported

Coal-

Coast

Hydro Natural

Gas @ $6

Per

MMBTU

Natural

Gas @ $7

Per

MMBTU

Natural

Gas @ $8

Per

MMBTU

Variable Charge Fixed Charge

Natural Gas compares favourably with competing fuels till a price of USD 7- USD 8

per MMBTU delivered

However long term pricing certainty shall be an imperative as the Indian PowerMarkets are coal dominated

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10.

Given the right price, Natural Gas can play a large role in Indias Power SupplyBasket

Fuel DiversificationFuel Diversification

Indias Power Generation mix is considerably gravitated towards coal based power generation

The current capacity addition underway accentuates this dependence on coal as a generation source

Indias Power Generation mix is considerably gravitated towards coal based power generation

The current capacity addition underway accentuates this dependence on coal as a generation source

Expected Coal ShortagesExpected Coal Shortages

CIL predicts a substantial shortfall in the quantum of its coal production and committed linkages during this

decade

The Production from captive coal blocks is slow to take off

CIL predicts a substantial shortfall in the quantum of its coal production and committed linkages during this

decade

The Production from captive coal blocks is slow to take off

Smaller Gestation Period leading to Faster Capacity AdditionsSmaller Gestation Period leading to Faster Capacity Additions

Greenfield LNG Based Power Plants can be set up in a period of 28-30 months

Whereas, other conventional sources of have gestation periods ranging from 48 months-84 months

Greenfield LNG Based Power Plants can be set up in a period of 28-30 months

Whereas, other conventional sources of have gestation periods ranging from 48 months-84 months

Peaking AbilityPeaking Ability

Dedicated Plants operating in Open Cycle in proximity to Load Centers can meet Peak Demand Dedicated Plants operating in Open Cycle in proximity to Load Centers can meet Peak Demand

Comparatively Clean and Lean Source of PowerComparatively Clean and Lean Source of Power

About 50% lesser emissions than a coal based station

Land and Water Requirement is also substantially lower

About 50% lesser emissions than a coal based station

Land and Water Requirement is also substantially lower

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11.

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