Merchant power prices may fall in five years

In April 2009, merchant power prices in India touched a staggering peak of Rs 10.8 per unit. But a recent report by Crisil says such sunny days of high prices might not hold on for long. According to the report, merchant power prices could plummet to Rs 3.50 to Rs 3.80 per unit in five years.

The combined effect of reduction in peak power demand gap and increasing power capacity addition will cause the fall. Crisil predicts the demand-supply gap will reduce by half to four to five per cent in 2014-15 from 10 per cent in 2009-10. This will happen on the back of capacity addition to the tune of 82-Gigawatts. During the same period, merchant power capacities are expected to increase more than four-fold from around three Gigawatts to 13 Gigawatts.

Merchant power fetches extra upside to companies, and increases returns of power producers to 20-25 per cent, whereas the regulated return by the Central Electricity Regulatory Commission is at 15.5 per cent.