The Cost Hierarchy That Shapes India’s Grid
Why the grid runs not on fixed cost — but on the marginal rupee of fuel burned.
Every evening, as India’s dispatch curve refreshes, one truth quietly plays out — it’s not the fixed cost that shapes the grid, it’s the variable one.
Gas and liquid-fuel plants, no matter how advanced, simply can’t run against the arithmetic of fuel. The numbers make it plain: fixed costs matter far less than the fuel burn.
The Core of the Curve
The daily merit order is not shaped by how expensive a plant was to build, how new its turbines are, or how efficient its heat rate might be. The grid moves on one logic — the marginal rupee of energy burned per unit.
Across India’s generating fleet, fixed costs don’t vary all that much:
NTPC and state-run coal plants sit around ₹0.6–1.8/kWh.
Gas-based combined-cycle stations hover near ₹0.8–1.2/kWh.
Old liquid-fuel units, long past depreciation, are even lower.
On paper, these plants appear comparable. But in dispatch order — they live in different worlds.
Where the Real Separation Happens
The real divide lies in the variable cost column, and it’s a wide one:
Pithead coal plants (Singrauli, Rihand, Sasan): ₹1.3–2.2/kWh — the undisputed baseload.
Non-pithead coal & mixed-fuel plants (Unchahar, Khurja, Rajwest): ₹2.4–3.5/kWh — swing depending on coal linkage and blending.
Gas-based plants (RLNG-fed): ₹13–16/kWh — reluctant peakers, dispatched only during coal tightness or frequency stress.
Liquid-fuel plants (Dadri LIQ, Auriya LIQ): ₹18–25/kWh — pure emergency insurance.
The difference is so stark that no amount of turbine efficiency or depreciation relief can bridge it. A brand-new CCGT with stellar heat rates still loses to fuel price. An aging coal boiler, despite inefficiencies, still wins dispatch on economics alone.
The Consequences of This Hierarchy
Because of this fuel-cost ladder:
Gas capacity remains chronically under-utilized.
Old coal units keep running at high PLFs.
Liquid-fuel units survive only as standby insurance.
And so, the much-discussed “capacity shortage” is rarely a shortage of megawatts — it’s a shortage of cheap, burnable fuel that fits within the grid’s economic structure.
Until the Fuel Ladder Changes...
India’s grid merit order will remain what it is today:
Coal runs. Gas waits. Liquid watches.
Nothing in the fixed-cost structure — no capacity payment, no modernization scheme — can override that hierarchy.
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