Decentralized gas based power may hold key to achieve energy mix target, meet Paris agreement aim

Gas for decentralized power has for long held a lot of promise but somewhat failed to take off. Increased focus on climate change as a topic and historically low gas prices have brought back focus on what’s considered a low hanging fruit towards decarbonizing the economy.

For the government, it presents an opportunity to inch closer to its goal of increasing share of gas in primary energy mix from ~6.5% to 15% by 2030 (with unconstrained potential equal to ~50% of current gas sales). Realizing projected 2030 potential will also help meet 20% of India’s Paris agreement target for emission intensity reduction. Moreover, large scale adoption will help reduce required investment in expensive transmission capacity to support large scale renewable addition given its complementary nature (high ramp up/ down rate while having 45% lower GHG emissions vs. similar coal based captive).

For large industrial and commercial establishments it offers a greener, cheaper and more stable alternative to grid based power while for gas retailers, this segment presents large single location demand centers which will become especially attractive in capitalizing opportunities in other retailer’s license areas post operationalization of open access.

Despite its many benefits, the adoption of gas based decentralized power has remained low historically. Widespread availability of gas retail distribution network has always been one of the key reasons. Even in markets like Gujarat which have an extensive pipeline network, gas based genset/engine installation peaked around 2012 driven by gas based power being cheaper than coal based captive power. However, steady increase in Brent index and weakening of Rupee against Dollar has led to gas based power becoming uncompetitive post 2013. In fact, over 50% of the ~1GW of installed decentralized gas based power assets in India are now assumed to be decommissioned or non-operational. This divergence in economics vs. coal based captive power has been accentuated by lack of long-term fixed price gas products, high upfront capex, low awareness amongst end users and limited solution design ability.

However, increased prevalence of trigeneration technology (which is able to convert waste heat into into usable cooling or heating equivalent to ~20% of electricity output) and historically low gas prices have made the overall economics of using gas based power attractive once again. This is especially true for commercial establishments having significant heating / cooling requirement (like hotels, hospitals, malls and data centers) and industrial units having steam requirement.

This has coincided with enhanced focus from both OEMs and gas retailers to penetrate this segment. EESL has bought UK based gas genset manufacturer Edina and then inked MoUs with leading players like GAIL and Gujarat Gas Limited to drive adoption of this technology. Other players like Clarke Energy and Green Power have also forged partnerships with gas retailers to help drive go to market efforts. Leasing options are also available for end users who are averse to incurring large capex.

This increased competitiveness and maturing of ecosystem has been complemented by increase in addressable size as areas under awarded CGD license areas has increased to 70% population coverage post 9th and 10th round of CGD license award. While all these favorable changes have given a new lease of life to decentralized gas based power, three key shits are critical in driving widespread adoption over the coming years.

Gas retailers having the customer access need to develop ability to drive solutioning at scale. This involves creation of business case calculators supporting multiple OEM products, ability to offer customized gas sales contracts and provide end to end offering including financing and O&M support.

In parallel, state governments need to assess removal/ reduction of generation duty for gas based captive generation (similar to renewables) and revisit tax levied on gas used for power application (which his higher than tax levied on gas consumed for industrial process requirements in many states) to promote usage of gas based power.

Lastly, awareness amongst architects and design consultants need to be brought about so that these technologies can be considered at the time of project conceptualization. In summary, a strong foundation has now been laid towards leveraging decentralized gas based power as an economically viable decarbonization lever towards achieving India’s Paris commitments. However, concerted effort by all stakeholders is required to help achieve its full potential.