Diesel And LPG Generation

by Satish Seth

Diesel based generation should be completely stopped

  1. Diesel based power is undeniably the most expensive power in terms of cost and has significant impact on the environment. Country like India can seldom afford to waste its precious foreign exchange and energy cost to generate diesel based power.
  2. Load shedding and unreliability of power supply are two main reasons why millions of Indians as well as industries and industrial applications continue to use large / small diesel generators to address the shortcoming of grid supply.
  3. Ironically this continues to happen as the country has the generation capacity to practically wipe out this national waste. On one hand, millions of diesel gensets in India continue to generate expensive power and spew harmful pollution, almost 14,000 MW of gas based capacity in the country that is capable of supplying green power at a fraction of cost remains stranded.
  4. It is proposed to make this entire gas based generation capacity operational by allowing imports of LNG wherever necessary and provide option to all diesel genset users to buy this power.
  5. This proposal has the potential to replace expensive, polluting diesel based power with an affordable and clean LNG based power. Stranded gas based capacity with an investment of over Rs. 80,000 crore that also involves debt extended by public financial institutions and banks, will cease to be NPAs and will contribute to the national exchequer by reducing expenditure on diesel for power generation.
  6. This article gives the extent of such diesel use for power generation in India, economics of both diesel and gas based generation and proposed scheme to operationalise or implement replacement of diesel based power with LNG based power.

Power generation with diesel – the scale

  1. As per the Load Generation Balance Report 2015-16 published by Central Electricity Authority (CEA), India is likely to experience a peak shortage of 2.6% and energy shortage of 2.1% however, peaking shortages in Southern and North-Eastern region is likely to be as high as 19.8% and 4.0% respectively.
  2. Power deficit is increasingly being met through power produced by diesel and heavy fuel oil powered generating sets.
  3. The power backup market in India is growing at an annual rate of 10-15% due to rising demand-supply gap, forcing diesel to be used as primary fuel for back-up power.
  4. Telecom service providers, tower operators, factories, hospitals, malls, hotels, restaurants, housing societies, farmers – almost everybody is unwillingly dependent on diesel for non grid power generation.
Diesel Consumed for Power Generation by Sector (2014-15)
Sr No Sector % of Total Consumption Billion Litres ₹ Cr (@ ₹48/L)
1 Industry for Captive Generation 4.1 3.4 21,600
2 Commercial & Others* 6.5 5.5 34,200
3 Telecom Towers 1.5 1.3 8,400
4 Railways 3.2 2.7 17,400
5 Total 15.3 12.9 61,846
(*Malls, hospitals, commercial establishments, residential societies, restaurants, hotels etc.)
  1. Overall consumption of diesel in the country has almost doubled from 50 billion litres in 2004-05 to 84 billion litres in 2014-15 at a CAGR of 5.4% in last 10 years. A significant chunk of this growth could be attributed to the usage of diesel in power generation that represents 15.3% of the total consumption. In 2014-15, India spent almost ₹62,000 crore on diesel as fuel for generating power. This doesn’t include diesel used for power generation for small sized generators at home and commercial establishments and purchased at retail outlets, the data for which cannot be separately captured.

Economics of generation – LNG is much cheaper and obviously greener

  1. At current rate of ₹48/liter, total cost of producing power using diesel is in the range of ₹20 to ₹23/kWh depending on the type and size of the generator.
    • Cost of power produced by DG set for non-industry and telecom towers hovers at ₹17-20/kWh (including cost of amortization of DG sets over a 6-7 year period).
    • The cost for generation in case of industrial captive operation is slightly lower due to relatively efficient operation (₹15-16/kWh).
    • Diesel pilferage losses of ~20% have been observed in the industry which increases the energy costs. Inefficient use of DG set where it runs at part load further increases the cost of generation to ₹20-23/kWh.
  2. In comparison, Liquefied Natural Gas (LNG) based power can be produced at a 1/3rd i.e. ₹6.5/kWh based on the current landed LNG price at the west coast of India of about US$7/mmbtu. All costs including regassification, transportation and taxes for LNG are taken into consideration while arriving at the generation cost of power using LNG.
  3. Indicated in the table below is the comparison of cost and carbon intensity of power generation using diesel and LNG. (an estimated 40 billion units of power generated using diesel in 2014-15 compared at today’s prices of both diesel and LNG). |Description|Unit|Diesel|LNG|Saving/Diff| |Fuel Cost|₹/kWh|12 – 16#|4.5|7.5 – 11.5| |CO2 Emission|Kg/kWh|0.76@|0.55|0.21| |Fuel Cost|₹ Cr|55,000|18,000|37,000*| |CO2 Emission|Million Ton|30.3|22|8.3|
# considering power generated per liter of diesel to be in the range of 3kWh/Liter to 4 kWh/Liter at a diesel price of ₹48/Liter; @ considering CO2 emission at 2.65 Kg/Liter of Diesel and power generation at 3.5 kWh/Liter; * Above numbers do not consider transmission, distribution, cross subsidy charges and losses etc. Even if we consider above mentioned charges at ₹3/kWh, additional cost for LNG based power could be ₹9,600 Cr leading to net saving of ₹27,400 Cr for LNG based power compared on fuel cost to Diesel generation.
  1. Diesel engines contribute significantly to the Particulate Matter pollution PM2.5 and PM10. Power generation using LNG has a significantly less generation of Particulate Matter which is turning out to be a major health hazard and pollutant in addition to CO2 and SOx and NOx.
  2. In addition to above, the decision to deregulate diesel prices since January 2013, in a bid to reduce fiscal deficit has created new challenges like:
    • Price difference in retail and bulk supply – opportunity for arbitrage
    • Use of other fuel options like Naphtha, furnace oil (FO), and low sulphur heavy
    • Pass through of high cost diesel power to end consumers (e.g. patients in hospital, customers in a mall etc.) leading to aggravating the high inflation scenario in the country.

A Compelling Rationale for Replacing Diesel Power with LNG power – How to Move Forward

  1. Present gas based capacity, commissioned as well as ready for commissioning is 27,123 MW. Out of this, a capacity of 9,845 MW receives some limited available gas. Remaining, 14,305 MW capacity had no supply of domestic gas and is classified as stranded gas based plants.
  2. The gas based power projects in the country received an aggregate of only 27.26 mmscmd in 2014-15 of gas against the total demand of 92 mmscmd, to operate at minimum load of 70% PLF.
  3. Investment of over Rs. 1.2 lakh crore for setting up this capacity must be made viable by operation of the gas power capacity and to avoid a total debt of Rs. 85,000 crore from becoming NPA. This can be achieved by ensuring gas availability for these stranded gas based projects. This could ensure system stability and effective management of peaking / varying loads through clean and green power.
  4. These stranded projects could be made viable by implementation of gas pooling mechanism and imposing a gas/LNG power purchase obligation, and stopping the use of diesel Generation in the country.
    • Import adequate LNG to operate these plants at ~50% PLF, to mitigate primarily
    • Adequate gas pipeline capacity and LNG import terminal capacity is already
    • GAIL can deliver RLNG at plant locations at US$ 8-9/mmbtu leading to energy
    • The overall cost of generation including fixed charges would be under ₹6-7/kWh which is a viable level for purchase by state utilities for supply to customers that want assured power on 24 x 7 basis. In any case, this is significantly lower than the cost of generation using Diesel at ₹20-23/kWh.

Challenges to Overcome - Lack of Open Access for Power Transmission

  1. Various states have different open access regulations – the genco and the consumer have to comply with the open access regulation of the respective state apart from agreeing to respective SLDC and the discoms’ commercial terms for open access.
  2. The main hindrance remains in the operational feasibility of supplying RLNG generated grid power to individual load center which demand may be much less than the minimum threshold of 1 MW needed for open access.
  3. Necessary regulatory and policy changes need to be undertaken for
    • Clubbing demand of various load centers to reach 1 MW threshold limit for open
    • Or reducing the threshold demand from 1 MW to a reasonable level to make load
  4. Feeders for supply to such customers need to be segregated to enable supply of assured power to these customers at acceptable tariffs.

Win-Win for All Stakeholders

This idea is no-brainer and an ordinary individual will also agree since it allows the stranded assets in India to be operational on immediate basis, make the non performing assets in the books of lenders as performing, thousands of jobs are restored, clean and green power is available to enable State to provide and meet their 24x7 power availability objectives, huge contribution of exchequer, and above all enables India to meet its commitments towards reduction in carbon emissions.
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