Power prices see a spike as states go on buying spree in poll season

As the coal supply situation fails to improve and general elections expected in the first half of next year, states are on a power buying spree. Major states lately have issued short-term (3-4 months) contracts totalling 23 GW for supply period up to April 2019.

The sudden demand spike has also pushed up the prices. Most states including Maharashtra, Uttarakhand, Bihar, Chhattisgarh have received bids at Rs 6 and above.

Market experts hint towards pressure on state-owned power distribution companies (discoms) to provide round-the-clock power during election season. States, however, are citing a lack of coal at their units coupled with increasing power demand for purchasing power through short and medium-term contracts.

Maharashtra leads the pack with contracts issued worth 9 GW and has received bids for Rs 5-7.5 per unit. The peak power demand of the state is 23 GW. The officials cite the increased purchase on shortage of coal at their thermal power units.

“We procured 4 GW from the short term route for the month of October owing to coal shortage at plants. We have otherwise sufficient power purchase agreements in place to meet demand,” said Sanjeev Kumar, Managing Director, Maharashtra State Electricity Distribution Company (MSEDCL).

Following the suit is election-bound Rajasthan with 4 GW of contracts placed and West Bengal with similar amount. Another election-bound state, Chhattisgarh, has placed contracts for 1.5 GW and has received all bids above Rs 6 per unit. In case of West Bengal, the highest bid received in Rs 12 per unit.

Sector experts point out the current spurt in short-term power demand can be expected to rise further over upcoming state as well general elections. Almost a decade back, during the 2009 general elections, the spot market for power saw a huge rise in demand leading to double digit prices per unit, even touching an all-time high of Rs 17 per unit. The demand back then was hugely led by state discoms reeling under pressure to supply longer hours of electricity and avoid load shedding to appease vote banks.

India has general elections next year with the present government’s tenure expiring May 2019.

The high prices however received could play a spoiler. Kerela recently reneged the tender for short-term power purchase of 900 MW as the price received was as high as Rs 7.87 to 11.75 per unit.

“Most of discoms feel that short-term bid prices of more than Rs 4 for Nov-Mar, 2019 and more than Rs 6 for Apr-June periods are on the higher side and they are unlikely to tie up,” said Rajesh Mediratta, director (business development), India Energy Exchange.

He adds that the prices in the day-ahead market (daily power supply contracts) have started settling down to Rs 3.5 during this month from a high of Rs 4.7 in September and Rs 6.8 in October. “There has been reduction in all India demand by at least 15 GW and improvement in coal availability,” he said.

Government officials are though confident that the power demand is now on a steady growth path. This paper recently reported that an electrification drive and reversal of muted industrial demand has led to sharp increase in the power demand. During the April-September period of the current year, power demand has registered a 7.6 per cent growth, which is the highest in the past five years.