New Delhi: Electricity spot prices in India surged to a more than eight-year high because of lower quantum of traded power, higher demand amid a retreating monsoon, which has also forced power sellers such as Telangana to turn buyers.
Power prices surge to a record on higher demand
Prices touched ₹14.08 per unit for Tuesday on the India Energy Exchange (IEX). It was the highest since April 2010 when spot prices rose to ₹13.90 per unit. The all-time high for electricity in the spot market was ₹17 per unit in April 2009, according to IEX.
Lower generation from hydro and wind power projects, and rise in humidity and temperatures contributed to the rise in electricity spot prices for Tuesday delivery.
According to IEX, the average price for Tuesday is ₹6.53 per unit with only 200 million units (MUs) of electricity being offered to be supplied on the exchange as compared with a demand for 266 MUs.
electricity price in spot market soaring to a record of ₹12.95 per unit on Sunday, while the peak hour price touched ₹8.78 a unit.
According to IEX, some of the large sellers such as Madhya Pradesh, Uttar Pradesh, Karnataka, Haryana and Meghalaya brought lower amounts of electricity for sale. Also, state power distribution companies in Telangana, Tamil Nadu, Maharashtra, Bihar and West Bengal are buying power at higher rates to meet rising demand.
Power distributors have been the weakest link in the electricity value chain given their poor payment history.
A power exchange functions on the lines of commodity exchanges and provides a platform for buyers, sellers and traders of electricity to enter into spot contracts for the same day, coming day, and on a weekly basis.
Of about 1,200 billion units (BU) of electricity generated in India, the short-term market comprises about 130-150BU. This trade volume has grown by about 10% annually and is currently valued at about ₹22,124 crore.
According to IEX, the average price for Sunday was ₹6.30 per unit on account of only 192 million units (MUs) of electricity being supplied on the exchange as compared to demand for 298 MUs.
The average and maximum spot prices have been increasing since September, said Rajesh Kumar Mediratta, director, business development at IEX.
“Given the high electricity prices, the stressed power generation assets shall source coal and supply electricity to the market. In September, generally wind and hydro power generation comes down. Also, with the monsoon receding, humidity and temperature goes up leading to an increase in demand,” Mediratta said.
According to the India Meteorological Department (IMD), the monsoon has started to show signs of weakening with reduced rainfall over north-western states. While the withdrawal of monsoon from North-West India can begin anytime after 1 September, scientists highlight that it was delayed due to a depression over the Bay of Bengal, which moved up to Rajasthan and brought rainfall over north-western states.
India’s power demand is expected to grow with the government’s focus of providing “24×7 clean and affordable power for all” by March 2019. The government has also been exploring steps to boost electricity demand, even as the power sector remains one of the highly stressed sectors, with close to Rs1 trillion of loans having turned bad or recast.
This also comes at a time when the government seeks to make all consumer categories pay the same tariff for the same volume of electricity consumed, if they have the same load and voltage, according to the draft amendments in the tariff policy. Effectively, consumer categories such as commercial, domestic, agricultural, industrial and institutional may be brought at par.
The government is working on an ambitious plan to provide induction stoves to poor households. Also, the ₹16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya), launched last year to provide electricity connections to more than 40 million families by December 2018, will require an additional 28,000MW of power, considering an average load of 1 kilowatt (kW) per household for eight hours in a day.