IOC plans to enter thermal power generation, trading
New Delhi   26-Apr-2011


Mr. R. S. Butola, Chairman, IndianOil

In line with its ambition to turn a complete energy company, India’s largest oil refiner and marketer IndianOil (IOC) is planning a major foray into thermal power generation and power trading.

IOC chairman RS Butola on Monday unveiled comprehensive plans to enter the power sector. Setting up large thermal power plants using natural gas and entering power trading are the major components of the plan. “We plan to enter merchant power business. We have synergies for that,” Butola said in his first media interaction after assuming office.

Earlier, IOC had announced plans to set up nuclear power projects with a total capacity of 2,000 MW in collaboration with fellow PSU Nuclear Power Corporation. It also has a few small captive power plants.

Merchant power generation is risky since a big chunk of power is untied for sale in the free market, where price fluctuates depending on demand and supply. The price which was in the range of R5-6 a unit a year ago is now ruling at R4. Financing such projects is also difficult, prompting big players like JSW Energy, Reliance Power and Lanco Power to enter power trading.

“The price of electricity sold from merchant power plants may have declined in the last year because of weak demand from distribution companies. But rising generation cost presents an upside for these plants over the long term,” Kuljit Singh, an energy expert from Ernst and Young said.

Thanks to its size, IOC is better equipped to enter merchant power. The company is already engaged in natural gas trading business as an equity partner in Petronet LNG. It has 30% share in the 7.5 million tonnes per annum LNG tied up from Qatargas.

A significant chunk of electricity generated by merchant power plants is sold at market prices outside long-term agreements. Since demand continues to outpace supply, developers are setting up merchant generation capacity to cash in on trading opportunities. Natural gas-based plants are a reliable source for meeting peaking power requirement as they can be started and shut down as per convenience.