Short-term contracts for power to surge during summer

Cap on drawal under UI mechanism is also a trigger

Short-term contracts for power are expected to surge further with the onset of summer and the fresh restrictions imposed by the Central Electricity Regulatory Commission (CERC) on the drawal of power under the unscheduled interchange (UI) mechanism.

These restrictions came into effect after grid disturbance took place on July 30 and 31 last year.

As per CERC’s analysis for February, short term contract volume rose by 67% to 3,149.27 million units (MUs) in February from 1,883.75 MUs. As high as 1,947.99 MUs, which is 75% of total volume, has been contracted at above price of Rs 4 per unit as compared to 95% during January.  The overall price was in the range of Rs 2.90 per unit and Rs 6.27 per unit.

MG Raoot, MD & CEO, National Power Exchange told Business Standard “The demand for power is expected to further surge during summer and the upward trend in short term contracts will continue until the high hydro period commences in June and July when the demand and the electricity prices will come down. With the restrictions imposed by CERC on overdrawal of power from the grid, utilities will have to meet their requirement through short term contracts including power exchanges.”

Raoot said that there is a marked improvement in the behavior of power utilities in maintaining discipline after the grid disturbance in July last year. “Their overdrawals have reduced as utilities have resorted to short term contracts in the market,” he added.

Moreover, Indian Energy Exchange, with a daily turn over of 70 million units in the day ahead electricity market, expects the present trend of short term contracts and day ahead contracts to continue.

“Power utilities are trying to make transactions under the short term contracts instead of depending on the unscheduled interchange (UI) mechanism. Present trend of increase in short term contracts will continue. Even when the grid frequency is in the safe range of 49.5 Hz to 50.2 Hz, utilities cannot go for unlimited drawal of power under UI. They will have to restrict power drawal under UI mechanism upto 3% of the total scheduled volumes or 150 MW whichever is less," notes, Rajesh Mediratta, Director, Business Development, Indian Energy Exchange.

Furthermore, PTC India’s executive director Dr Rajiv K Mishra admits that  power utilities will continue to go in for short term power procurement contracts or trading through power exchanges to bridge the gap between demand and supply in the peak summer season and also because of cap on drawal of power under unscheduled interchange (UI) mechanism.

“However, available transmission capacity for few corridors may emerge as the critical chain to meet enhanced supply. Central Transmission Utility (CTU) should undertake requisite power system studies and come out with the revised available capacities of transmission corridors and if at all there are certain bottlenecks it should identified. With large capacity addition in transmission by CTU in recent past there should not be a Pan India constraints on the transmission capacity," says Dr Mishra.