Power traders: Tariff cap a dampener

Players trading in power were having a field day with rates soaring to levels of Rs 14 per unit.

While the cap of Rs 8 per unit imposed by the Central Electricity Regulatory Commission (CERC) may limit their gains, the price, say industry watchers, is fair and would allow even those power generation firms using expensive fuels to make a reasonable return on their investments.

The cap has been put in place for just 45 days, ostensibly to coincide with the festive season. Although tariffs had shot up to as much as Rs 14.50 a unit on power exchanges, most trades were taking place between Rs 5 and Rs 7 a unit.

 

As such, there shouldn’t be too much of an impact on the merchant power market. Among the listed power generation companies, Jindal Steel and Power (JSPL) is one that could be slightly hurt by the cap.

The JSPL stock closed higher at Rs 575 on Monday but that’s probably because the company has announced a issue of bonus shares in the ratio of five shares for every one share held.

Analysts point out that JSPL has been realising average tariffs of around Rs 6-6.50 per unit and this may come off somewhat. For Tata Power, the impact would not be so high because it sells a relatively smaller share of its output through the merchant route.

The CERC had earlier toyed with the idea of a ceiling of Rs 11per unit, both for bilateral agreements and for power traded on the power exchanges.

The tariff was based on the cost of generation of liquid fuel and naphtha-based power plants. The cap has been prompted by a sharp increase in the prices of traded power over the past 30-40 days, caused by a lower output from hydro power plants in the wake of a less than normal monsoon.