Power generation: The right mix

Power generation in the first five months of FY20 has increased by a modest 3% year-on-year. That for November 2019 has stayed rather stagnant at 7.2 billion units. Vile the total power generation is identical to that of last year same period, the composition of the fuel source reads an entirely different story.

The shift from furnace oil-based power generation to cheaper alternative fuels has been well documented and the ever-improving power generation fuel mix well and truly reflects the transition.  November 2019 saw virtually zero production from furnace oil, much in line with November 2018. Hydel power generation was the top fuel source with 39 percent share. The benefits of adding new small hydropower projects and the extension of bigger times are finally reflecting in the generation mix which bodes well for dependable energy baseload going forward.

The biggest stride has been made by coal-based generation, the share of which went up to 27 percent, virtually doubling from the same period last year. This is also coal’s largest monthly contribution, both in absolute and share terms. Add to that, nuclear power contribution at 12 percent, also a near all-time high – and you have 78 percent of generation taken care of by the cheapest fuel sources.

The combined share of natural gas and imported RLNG based generation halved from 37 percent in November 2018 to 18 percent in November 2019. The acute gas shortage due to high domestic demand was always going to put pressure on supply to power plants – and the result was the lowest contribution from natural gas in at least five years.

The imported LNG based power generation also recorded a 24-month low, both in terms of share and absolute production. RLNG understandably sits much lower on the merit order, and with much curtailed power demand in winters, the LNG based generation was always going to be on the lower side. Yet the monthly fuel cost overran the reference fuel cost for the month by approximately Re1 per unit.

This is an oft-recurring phenomenon, and 11 of the last 12 months have seen the fuel price component go up by an average of Re1 per unit. This tells why the CPPA power demand and cost projections also need an uplift. That may take some time as the ones prepared for FY20 are also bordering on unrealistic assumptions. And then, there will be the dreaded capacity price component, that hurts more in days of lower demand. All those LNG units which went un-generated, certainly won’t go unbilled. Increasing power demand should be the next objective, now that price rationalization is an automatically built mechanism. Without more demand, you will keep paying for the units that were never made.