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Essar Energy On A Gas-To-Coal Switch

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The unavailability of gas in the country has forced Essar Energy to shift from gas to coal. Essar Energy, on 24 June, announced that it is in the process of converting two of its gas-fired power plants into coal-fired units.

Essar has decided to convert its Hazira plant (515MW) in Hazira, Gujarat and Bhander Power (500 MW) located in Hazira, Gujarat into coal-fuelled units. The two plants have been running on imported LNG for the past 2-3 years in the absence of domestic gas. The plants were initially expected to run on domestic APM (administered pricing mechanism) gas but did not receive allocation from the government in the light of declining gas production in the KG Basin. The plant runs on

imported LNG for which the company pays anywhere between $12-18 mmbtu (million metric British thermal units) on a month-to-month basis to keep the plant running in a market where domestic gas is priced at $4.20.

“The LNG availability is at a very high price and considering this, we have decided to convert our two gas-fired plants into coal fired units,” informed Naresh Nayyar, CEO of Essar Energy.
Read: Essar Energy Expects Growing Indian Demand To Boost Sales

It will take a minimum of three years for the company to complete the conversion procedure and it expects to be done by 2016. The projects are port-based and therefore, would depend on the imported coal which the company plans to source from Indonesia. The government’s recent decision to allow producers to pass through the cost of imported coal to the consumers could also work in its favour.

The annual coal requirement of the two plants after the conversion is estimated to be around 1.5 to 1,7 million tonnes (mt). Nayyar admits that the company will reduce its variable fuel cost by 60 per cent.

Even though the gas-fired plants are environmentally much more cleaner, the lack of domestic availability and expensive import of LNG has forced the management to turn towards “economically more robust” option of using coal as fuel.

The power produced from these units is supplied to the company’s own steel plants and 300 MW of the Hazira plant capacity is reserved by GUVNL, Gujarat state power utility. When asked how the company expects to service its PPA with the utility when the plant will be going through conversion process, the management

said they have worked it all out. However, speaking to a top official of the Gujarat utility had a different story. The official informs that the utility has not received any information from the company in this regard. However, the discom has not been drawing much power under the PPA since it was based on imported LNG and therefore, more expensive. “The offtake from the plant at present is zero,” says the official.

Essar has one more gas-based power plant at Vadinar, however the company has no plans to covert this into a coal-fired unit. Some part of the plant’s capacity runs on refinery fuel, gas and coal and Nayyar says the mix is important for the company’s energy security.